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July 19, 2022

ERTC and the IRS: Biggest Considerations Before Claiming the Employee Retention Tax Credit

The Employee Retention Tax Credit (ERTC) is gaining more and more attention as companies are discovering that they have through the end of 2023 (for 2020) and 2024 (for 2021) to amend their previously submitted 941s. Eligible companies impacted by the pandemic have been able to claim generous amounts, which makes the credit very appealing. But it’s important to keep in mind that there are gray areas in the IRS guidance around the credit. If you have been approached about claiming the ERTC, or are curious if you really qualify, below we discuss a few important considerations.

Am I Really Eligible for the ERTC?

Many businesses are being approached by consultants and told that they could receive substantial credits, even if they didn’t experience the required drop in revenue. If your business experienced a full or partial shutdown as a result of the pandemic, in some instances you may still be eligible. However, since certain components of the IRS guidance are subject to interpretation, it’s wise to include tax professionals in your decision-making process. It’s very important to take the time and look at the definitive factors to see if your business is eligible for the ERTC.

What are the Consequences if I Claim the ERTC without Being Eligible?

It’s possible and even probable that the IRS will release guidance in the future and create an auditing process around the ERTC. As with past tax credit programs, businesses that received the credit without fully qualifying may owe back any funds received along with associated penalties.

Proceed with Care

If you have been approached about claiming the ERTC even though your revenue increased during the pandemic, make sure to do your due diligence. Are they asking for an unusually large percentage of your credit as compensation for the analysis? Are they basing your eligibility solely on the unknowns, hoping the IRS will not look into it? If and when the IRS does start an audit process, it will likely be the responsibility of the business, not the advisor that helped them claim the credit, so don’t go into it blindly.

We certainly advise our clients to take advantage of this unique opportunity. However, we also recommend our clients use a common sense approach and err on the side of caution when it comes to what is eligible and what isn’t. Make sure you work with an advisor who truly understands the ERTC program and doesn’t rely on the gray area to get you quick money.  No one likes an IRS audit, so don’t expose your business to undue scrutiny if you’re not certain. 

If you have questions about the credit or if you truly qualify for the ERTC, Anders can help. Contact an Anders advisor to discuss how we can best assist you and the associated fees. Our advisors are closely following the ERTC changes and will continue to publish insights to keep you informed.

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