Although many Coronavirus Aid, Relief and Economic Security (CARES) Act programs have come to an end, they continue to have an enormous impact on businesses. With the SBA and IRS continuing to release announcements and clarifications around relief programs, we’re breaking down important updates to explain what they mean to your business. See the latest clarifications below.
3/19/2024: ERC Deadline – IRS Voluntary Disclosure Program Ends March 22
Businesses that applied for an Employee Retention Tax Credit (ERC or ERTC) they weren’t qualified to receive were given two options to correct those ineligible requests by the IRS. The first option was the withdrawal program for businesses that applied for the credit and were approved but hadn’t yet received their refund or they had received the funds but hadn’t cashed the check yet. In either of those circumstances, the business may avail themselves of the program. If the business has received the refund and cashed the check, they can take the second option, the ERC Voluntary Disclosure Program, but the deadline to do so is swiftly approaching.
What Is the IRS Voluntary Disclosure Program?
March 22, 2024, is the final day a business can apply for the ERC Voluntary Disclosure Program. If a business didn’t meet the qualifications for the withdrawal program, it had an additional chance to resolve the matter with the IRS. The program lets eligible businesses return up to 80% of the claim received to the IRS while retaining the remaining 20%. In addition to meeting the March 22 deadline, businesses interested in the voluntary disclosure program would also be expected to:
- Disclose information about the advisors or consultants who assisted in submitting the claim
- Cooperate with the IRS in supplying additional information as requested
In the final days before the ERC Voluntary Disclosure Program deadline, consider meeting with your advisors to discuss whether participation makes sense for you. You’ll be required to prepare a Form 15434 application and potentially an ERC-VDP Form SS-10 if your application includes tax periods ending in 2020.
1/4/2024: IRS Introduces Repayment Program for ERC Claims Amid Moratorium
As the IRS moratorium on processing new ERC claims continues, the agency is taking additional steps to address employers who were targeted by aggressive ERC marketers and consultants. A newly announced disclosure program, the Employee Retention Credit (ERC) Voluntary Disclosure Program, aims to give employers who were misled into filing claims a path to pay back the funds.
The program allows employers who received ERC funds to repay only 80% of the funds they received. Participants won’t be required to repay interest the IRS has already paid on the employer’s ERC refund. They also won’t be charged additional interest or penalties on the repaid credits. Some employers who are unable to repay the required 80% of the claim may be eligible for a repayment installment program.
According to IRS Commissioner Danny Werfel, the ERC Voluntary Disclosure Program gives employers who are “eager to correct their error, but who remain concerned about their ability to pay back the portion of the credit that has been lost to the promoter that brought them into this mess.” This “provides the relief these taxpayers requested,” while also helping with the agency’s “ongoing efforts to gather information on promoters who created this situation by aggressively pushing people to apply for the credit.”
To qualify for the program, employers are required to share the names, addresses and phone numbers of any advisors or tax preparers who advised or worked with them to file the claim. The agency also requires employers to submit details about the services that were provided. In order to take part in the program, employers must file the newly created Form 15434 through the IRS Document Upload Tool. Employers who have already received their ineligible claim for a tax period are allowed to apply as long as the following statements are also true:
- The employer isn’t under a criminal investigation, nor have they been notified that they’re under a criminal investigation
- The employer isn’t under an IRS employment tax examination for the same tax period for which they’re applying to the program
- No IRS notice or demand for repayment of part or all of the ERC has been received by the employer
- No information from a third party regarding the employer’s noncompliance has been submitted to the IRS, nor has the IRS otherwise acquired information relating to noncompliance from an enforcement action
Employers must apply to the program by March 22, 2024 to be eligible.
11/10/2023: IRS Announces ERTC Withdrawal Process for Certain Taxpayers
As part of their ongoing response to the high number of ineligible Employee Retention Tax Credit (ERTC) claims, the IRS has announced new guidelines for employers to withdraw their claims if they were misled or pressured by aggressive marketers. The special withdrawal process potentially allows small business owners and employers the chance to avoid repayments as well as interest and additional penalties, but not all qualify. Employers can use the ERTC claim withdrawal process if all of the following apply:
- They made the claim on an adjusted employment return, which includes Forms 941-X, 943-X, 944-X and CT-1X
- They filed the adjusted return only to claim the ERTC and made no other adjustments
- They want to withdraw the entire amount of their ERTC claim
- The IRS has not paid their claim, or the IRS has paid the claim but the employer hasn’t cashed or deposited the refund check
Anders CPAs + Advisors used a measured approach in determining client eligibility. We are confident that our analysis remains compliant, negating the need for our clients whose ERTC claims were managed by Anders to avail themselves of this program.
To learn more about the ERTC withdrawal process, and eligibility requirements, check out our full-length blog.
10/3/2023: Selling a Business with Existing EIDL Funds
Because of the strict rules governing the use of EIDL funds, some business owners may be hesitant to sell their business with one still attached. There is a definitive answer to this question: it’s possible to sell a business, even when you’ve taken EIDL funds, but there are incredibly important steps that must be taken first to ensure you’re moving in complete compliance with SBA rules governing the use of EIDL funds.
The first thing a business owner must do before selling their business is contact the SBA and seek authorization from them. Once they are informed, you may be presented with one of three options. Although the phrase “options” is used, these are not negotiable and will need to be completed in order to proceed with a sale.
In one scenario, the SBA may deny your ability to sell your business with the loan still attached. You may be required to pay off the loan before the business is sold.
In the second scenario, the SBA may grant you permission to sell the business, but you may be required to use the proceeds of the sale to pay off the loan.
In the third scenario, the SBA may allow you to transfer ownership of the loan from yourself to the new owner. In order to do so, the SBA has to qualify the new owner since the new owner of your business will also need to comply with the loan requirements to come into possession of the loan.
9/15/2023: IRS Pauses Processing on New Employee Retention Tax Credit (ERTC) Claims
The IRS issued a moratorium on processing new Employee Retention Tax Credit (ERTC) claims on September 14, 2023. The moratorium, which took place effective immediately and will last through December 31, 2023 at least, comes as the IRS seeks a way to protect honest small business owners from scams. Some aggressive promoters and marketers have pushed businesses to submit a claim for the pandemic-era relief program despite their ineligibility, creating a backlog of inappropriate claims that the IRS will closely review during the moratorium.
Previously filed ERTC claims received before the moratorium was enacted will be processed, but the federal tax agency has warned that fraud concern means processing times will be significantly longer.
Additionally, the IRS is in the process of developing new initiatives for businesses victimized by aggressive ERTC promoters, including a settlement program for businesses that received an ERTC payment they weren’t qualified for, allowing them to repay the funds without fines or penalties. Learn more about the ERTC moratorium.
8/15/2023: IRS Clarifies ERTC Ineligibility due to Supply Chain Disruptions
Throughout 2020 and 2021, supply chain chaos caused major disruptions to businesses, sometimes to the extent that some had to fully or partially suspend their trade or business. Some employers may have heard rumors that a COVID-19 outbreak was responsible for delays or stops in deliveries or bottlenecks at port. As supply chain disruptions impacted ports around the world, critical goods were either delayed or lost entirely, some companies that weren’t shuttered by a government authority still had to temporarily suspend operations as a result.
Since one way to qualify for some CARES Act programs, such as the Employee Retention Tax Credit (ERTC), is for an employer to show evidence their operations were partially or fully suspended by a governmental authority due to COVID-19, do supply chain interruptions during parts of 2020 and 2021 entitle an employer to qualify for the ERTC or other CARES Act programs?
Unfortunately, no. According to recent guidance from IRS memorandum AM 2023-005, language in the CARES Act does not include supply chain disruptions because the disruption, by itself, doesn’t “rise to the level of a full or partial suspension primarily because no governmental order applies to the employer’s operation.”
There is an exception, with very limited, narrow scope, for employers who had to fully or partially suspend business operations because their suppliers were ordered to by an appropriate governmental authority.
The limited exception allows that “[a]n employer may be considered to have a full or partial suspension of operations due to a governmental order if, under the facts and circumstances, the business’s suppliers are unable to make deliveries of critical goods or materials due to a governmental order that causes the supplier to suspend its operations.”
To qualify for the exception, the employer must provide documentation or records demonstrating the following:
- The supplier had to suspend operations due to a governmental order
- The employer’s business had to partially or fully suspend operations because of the supplier’s inability to deliver goods or materials
- An alternative supplier was unable to deliver the critical goods or materials
5/19/2023: EIDL Borrowers Should Prepare for SBA Financial Reporting Requests
Early recipients of EIDL funds will receive a request from the SBA this year for financial information, per their EIDL agreement. A typical deadline would have been March 31, 2023 but as that has already passed, it’s likely that requests will be delayed and sent by December 31, 2023. Borrowers will then have 90 days to submit the requested information, possibly by March 31, 2024.
In the EIDL agreement, under the section titled “Books and Records,” there is a list of information that fund recipients may be required to share with the SBA. The section also includes guidance on record-keeping best practices. According to the agreement, borrowers are required to maintain “current and proper books of account in a manner satisfactory to SBA for the most recent five years until three years after the date of maturity, including extensions, or the date this Loan is paid in full, whichever occurs first.”
These books will need to include the following:
- Financial and operating statements
- Insurance policies
- Tax returns and related filings
- Records of earnings distributed and dividends paid
- Records of compensation to officers, directors, members, partners, proprietors and holders of 10% or more of your capital stock
As part of the conditions of the EIDL agreement, borrowers authorized the SBA to inspect and audit any books, records or other items relating to the borrower’s financial or business conditions. The SBA may also perform inspections and appraisals of any of the borrower’s assets. Furthermore, you may receive a request in writing from the SBA for an Accountant’s Review Report to accompany the financial statements. This review must be prepared by an independent public accountant and be paid for by the borrower.
The SBA may not require all the information listed above, but it’s wise to take advantage of the apparent delays to ensure your organization is prepared to comply with the eventual requests for information. In the case that the SBA decides to audit your business, it will be critical to have well-organized financial documentation.
5/4/2023: Final ERTC Filing Deadlines for 2020 and 2021 Confirmed
Upcoming deadlines for the Employee Retention Tax Credit (ERTC) have been confirmed. The pandemic-era credit is still available to eligible businesses retroactively if they file IRS Form 941-X. The form is used to make corrections to the original Form 941s filed by the business, but businesses are limited in how long they have to correct these filings.
Guidance from the IRS regarding Form 941-X deadlines reads, “Generally, you may correct overreported taxes on a previously filed Form 941 if you file Form 941-X within 3 years of the date Form 941 was filed or 2 years from the date you paid the tax reported on Form 941, whichever is later.” Forms 941-X must be filed no later than April 15 each year, which means the upcoming ERTC filing deadlines are as follows:
- Eligible employers must submit ERTC claims via their 941-X for Q2, Q3 or Q4 of 2020 by April 15, 2024
- Eligible employers must submit ERTC claims via their 941-X for Q1, Q2 or Q3 of 2021 by April 15, 2025
4/20/2023: IRS Adds Aggressive ERTC Promoters to 2023 Dirty Dozen Tax Scam List
To encourage businesses to exercise caution around third-party Employee Retention Tax Credit (ERTC) promoters, the IRS has added a new entry to the 2023 Dirty Dozen list of tax scams. This annual list identifies scams and schemes for taxpayers to avoid. Last year, the IRS identified aggressive, third-party ERTC promoters pushing businesses to apply for the pandemic credit even when the business is not eligible for the credit.
IRS Commissioner Danny Werfel said in a statement, “Businesses need to think twice before filing a claim for these credits,” adding that while there are promoters “misleading” businesses into believing they are eligible for ERTC funds, there are “very specific guidelines around these pandemic-era credits; they are not available to just anyone. People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims.”
The Commissioner urged businesses to remain wary of direct solicitation and advertisements promising tax savings that seem too good to be true. Instead, businesses are encouraged to seek advice from their trusted tax professional on the matter since the consequences of improperly claiming the credit can result in having to repay the credit along with additional penalties and interest.
There are many ways these third-party ERTC promoters attempt to pressure honest taxpayers and businesses to apply for the credit. Some may not fully or accurately explain eligibility and computation requirements of the credit. Oftentimes, they may use broad arguments to suggest that all employers are eligible, but fail to evaluate an employer’s individual circumstances. Some did not tell employers that they could not claim the ERTC on wages reported as payroll costs while obtaining Paycheck Protection Program (PPP) loan forgiveness.
Taxpayers and businesses should understand that anyone who files an ERTC claim are the ones ultimately responsible for the accuracy of the information on their tax return. As a reminder, to be eligible to claim the ERTC on qualified wages paid between March 12, 2020 and December 31, 2021, employers must have:
- Orders from an appropriate governmental authority that suspended, either fully or partially, operations and led to limited commerce, travel or group meetings due to COVID-19 in 2020 or the first three quarters of 2021; and
- Undergone a significant decline in gross receipts during 2020 overall or a decline in gross receipts during the first three quarters of 2021; or
- Qualified as a recovery startup business for the third or fourth quarters of 2021
4/5/2023: SBA Offers Hardship Accommodation Plan for Struggling EIDL Borrowers
The COVID-19 pandemic is still causing widespread, adverse effects, leading the SBA to provide EIDL borrowers who are continuing to struggle with a Hardship Accommodation Plan. The plan gives borrowers still struggling a bit of temporary relief, but there are several requirements and potential effects that must be noted before applying.
Under the Hardship Accommodation Plan, eligible borrowers experiencing short-term financial challenges will be able to make reduced payments for six months. Interest will continue to accrue during that time, potentially creating or increasing a balloon payment at the end of the loan term.
Beginning 60 calendar days before the date their first payment is due, Borrowers are eligible to enroll in the Hardship Accommodation Plan. For loan amounts less than or equal to $200,000, you should create a Capital Access Financial System (CAFS) account or log into your existing account. Once logged in, hover your cursor over “Borrower” and select “Borrower Search.” Choose the appropriate loan number and on the Loan Info page, you can request Hardship Accommodation.
To apply for Hardship Accommodation on loan amounts that exceed $200,000, you will need to contact the COVID-19 EIDL Servicing Center at (833) 853-5638 or disastercustomerservice@sba.gov and include “Hardship Accommodation Plan” in the subject line. Overall, the terms of the hardship plan are as follows:
- Borrowers must pay at least 10% of their monthly payment amount (a minimum of $25) for six months
- Larger payments can be made voluntarily during the Hardship Accommodation period
- Regular monthly payments will resume once the six-month Hardship Accommodation period ends
- Borrowers can renew the Hardship Accommodation Plan if needed
Making use of the SBA EIDL Hardship Accommodation Plan can grant struggling businesses a temporary reprieve from loan payments, allowing them to catch their breath and devise a strategy to power them through a rough spot.
2/10/2023: Terminating SBA Liens on Fully Repaid EIDL Funds
Businesses who received an Economic Injury and Disaster Loan (EIDL) from the SBA must manage their own lien termination. The SBA placed Uniform Commercial Code (UCC) liens on assets belonging to businesses who received $25,000 or more in EIDL funds. Once the EIDL funds are paid back, borrowers should receive a letter in the mail from the SBA noting that the loan amount has been fully repaid.
When borrowing from a bank, the bank may also put a lien against the borrower’s assets but unlike the SBA, the bank will remove the lien itself. Because the SBA is not a banking institution, it is not responsible for terminating the lien: you are. To determine whether there is an active lien against your business assets, visit your state’s Secretary of State website to search for your business. It’s also where you can have the lien terminated.
The process of terminating an SBA lien is complicated, especially since most businesses have no experience with the process as it’s typically handled by their bank. Complicated as the process might be, it’s an essential one. The lien must be satisfied prior to receiving any additional loans that use business assets as collateral.
Failure to do so will impact your ability to move your business forward.
2/2/2023: SBA Focuses on PPP and EIDL Audits in 2023
The Small Business Administration (SBA) has begun auditing recipients of the Paycheck Protection Program (PPP) and Economic Injury and Disaster Loan (EIDL) funds, which may make some business owners nervous about their fate. The good news is that businesses who qualified for the programs and adhered to the conditions associated with the program need not worry.
The SBA and other enforcement agencies like the IRS are less interested in pursuing honest businesses and instead focused on going after criminals who knowingly defrauded the programs. As long as you provided accurate information and spent the funds on approved expenses, the process should be virtually pain-free.
That being said, the old adage, “ignorance of the law is no excuse” still applies. It can result in consequences, including being found ineligible for their loan, loan amount or ineligible for the amount of loan forgiveness that had been claimed, forcing you to repay the outstanding balance of the loan. If you’re contacted by the SBA, you need to reach out to your advisors to help you through the process.
In the case of the EIDL program, the funds released to borrowers were meant to keep their business afloat, allowing them to pay employees and working capital, but specifically forbid them to use the funds for other items spelled out in the loan agreement. If you own a restaurant, for instance, and used your EIDL funds to purchase a second location, that would fall short of the eligible uses of proceeds.
For both CARES Act loan programs, the SBA will focus on business eligibility, the loan amount and use, and for PPP there will a determination whether the borrower is eligible for forgiveness on the claimed amount. Businesses may need to provide the following documentation to the SBA during an audit:
- Payroll records
- Bank statements
- Proof of expenses such as invoices, receipts or voided checks
- Past accounting records
Gather the documentation ahead of time, consult with financial professionals and take the process seriously. If an innocent mistake was made, engage your advisors when presenting your case to the government agencies. In most instances, a resolution can be reached.
12/22/22: Pandemic EIDL Recipients May Require SBA Subordination Before Applying for New Loans
Businesses seeking to expand or purchase new equipment may face a new hurdle if they received an Economic Injury Disaster Loan (EIDL). Before COVID-19, the EIDL program was more commonly used for natural disasters such as floods, tornados and hurricanes, with the distributed loans averaging around $30,000 to $50,000 or less. With the onset of COVID, the program was expanded, and loan amounts could range between half a million to upwards of $2 million.
While many of the businesses that took part in the first round of EIDL fund disbursements have already begun the repayment process, seeking conventional loans from the bank could be a complicated process.
While many of the businesses that took part in the first round of EIDL fund disbursements have already begun the repayment process, seeking conventional loans from their bank could be a little more cumbersome than before. If a business that received EIDL funding attempts to obtain a loan in a more conventional way, like from a bank, the bank could reject the loan on the basis that the EIDL repayments are the priority. Unless a business receives a subordination from the Small Business Administration (SBA) for their EIDL funds, any other conventional loans they receive will come in second place in terms of repayment priorities.
To subordinate those EIDL funds and free up your business for more traditional forms of borrowing, contact the SBA and complete a subordination request form. The process to subordinate loans may be lengthier than in previous years due to the volume of borrowers and the much higher dollar amounts that were distributed. Forward planning and careful consideration are key in the pursuit of growth in the coming year.
12/12/22: SBA Extends Storm-Related EIDL Payments, Not Pandemic EIDL Payments
Some recipients of pandemic era Economic Injury Disaster Loans (EIDL) may have been confused by a message from the Small Business Administration (SBA) extending payments on those loans by another 12 months. It should be noted that this announcement pertained specifically to loans made on or after September 9, 2022. These loans were related to recent storm and hurricane events rather than loans associated with the pandemic. Because destructive storms and pandemics can be considered disasters, they both qualify as EIDL events.
The pandemic related EIDL program ended on May 6, 2022 and many of the early EIDL recipients have already begun the repayment process and should continue to make those payments to remain in good standing. Later recipients of EIDL funds are still on a deferral and should follow SBA EIDL guidelines to determine when their repayment process begins.
As more information is released concerning CARES Act programs and other COVID-19 pandemic related relief funding, Anders will continue to provide updates to this post to empower business owners and leaders to know exactly where you stand in your CARES Act journey. Contact an Anders advisor below to learn more about the programs designed to help businesses thrive in a post-pandemic world.
10/19/22: IRS Warns of Third Parties Promoting Improper Employee Retention Credit Claims
The Internal Revenue Service (IRS) issued a warning to employers to beware of third parties urging them to claim Employee Retention Tax Credits (ERTC) when they may not qualify for it. Some of these third parties have taken improper positions related to taxpayer eligibility for and computation of the credit. These third parties commonly charge large upfront fees or fees contingent upon the amount of the refund. They may also not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.
The IRS has encouraged businesses to be wary of advertisements and direct solicitations promising tax savings that seem too good to be true. The IRS also added a reminder that it’s the taxpayer who is ultimately responsible for the information reported on their tax returns, meaning the taxpayer would be required to repay the credit, along with penalties and interest, while the third party keeps their fee and moves on.
Our advisors are closely following legislation changes and will continue to publish insights to keep you informed. Stay tuned for more CARES Act clarifications or learn more about our CARES Act Consulting services. To discuss how we can best assist you and the associated fees, contact Anders below.
All Insights
