Second Opinion on Your Employee Retention Tax Credits May Quell Uncertainty
Three-year Window Still Open to Correct Any ERTC Mistakes
Independent tax consulting companies that specialize in finding tax credits for their customers have, in some cases, been overly zealous in claiming the Employee Retention Tax Credit (ERTC), resulting in some businesses taking the credit inappropriately and others not receiving the credit even though they qualified.
The IRS is cracking down, and in one extreme case, federal agents from the IRS Criminal Investigation unit raided the Houston headquarters of tax consulting firm Alliantgroup on May 20, 2022, in an investigation reportedly related to allegations of the company’s aggressive pursuit of tax credits.
For business owners who took the ERTC – or who believe they qualified but were advised not to claim it – seeking a second opinion may be beneficial. Since the three-year window for filing amended payroll tax returns is still open, any mistakes can be corrected.
Confusing ERTC History
In part, confusion over the ERTC can be traced to its history. Created by the Coronavirus Aid, Relief and Economic Security (CARES) Act in 2020, it was designed to provide economic relief to businesses that kept workers on the payroll through the pandemic. It provided a tax credit taken against employee payroll taxes, and after several extensions it expired on December 31, 2021.
The ERTC was expanded several times through subsequent legislation. As a result, many businesses that did not initially qualify for the credit did qualify later, and were eligible to claim the credit retroactively by filing amended payroll tax returns.
Calculating the amount of the tax credits available and documenting the eligibility is a complex undertaking, and as a result some companies engaged outside consulting firms that specialize in finding tax credits for their customers to determine their eligibility and the amount of potential credits.
A Second Opinion on Your ERTC
If you have worked with a tax credit group on the ERTC or other tax credits and have questions about the results, it may be beneficial to seek a second opinion, even if you have already received the tax credits.
Consider several factors in determining whether you should take a second look at the ERTC credits you received:
- Did you submit your application for the ERTC more than 9 to 12 months ago without hearing anything back? You should have received a written notice that your information was received and is being processed, or a letter telling you why it is delayed. If your application was approved, you should have received a U.S. Treasury refund check in the mail.
- Do you have concerns about whether the tax credit consultant you worked with did a thorough job? If you own multiple business entities, different treatment or results for one entity compared to another similar entity could be a red flag, depending on the ownership structure.
- Did you apply for the ERTC under the supply chain interruption qualification, and if so, do you have copies of governmental shutdown orders, as well as documentation related to the products and vendor information to help correlate the shutdown(s) to specific orders that qualified you for the tax credit?
- Do you have your documentation supporting your ERTC claim and credit on hand if and when the IRS questions it? All of this documentation should be kept in one place.
Three-year Statute of Limitations
If you believe you may have received the ERTC credit inappropriately, or didn’t receive it despite qualifying, you have three years to amend the affected tax return. Since the ERTC was taken against payroll taxes, that would mean amending the affected Form(s) 941.
If you believe a second opinion is in order on your ERTC or any other tax credits you have taken in the past three years, contact your Adams Brown advisor.