BEWARE OF IMPROPER ERC TAX CLAIM OFFERS

BY MICHAEL J. RASMUSSEN, CPA

As a restaurateur, you might have been recently approached by a third-party company that claims they can help you get Employee Retention Credit (ERC) funds from the IRS. The ERC is a refundable tax credit for businesses that continued paying employees while they were shut down during the pandemic or that suffered significant business losses in that period. There are certain conditions that you must meet:

• You were forced by the state or local government to suspend or partially suspend operations due to COVID-19 during the first three quarters of 2021.

• Your business experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021.

• Your business qualified as a recovery startup business in the third or fourth quarters of 2021. In recent months, you might have received a text or email that reads something like this: “The employee retention credit (ERTC) is a credit that grants companies up to $26,000 per employee. Your business may be eligible if you have received a Paycheck Protection Program loan or had employees on payroll during 2020 and 2021. To apply before the application deadline of December 31, respond YES. Reply STOP to opt out.”

Your first reaction will probably be, how did I get on this mailing/text list? My advice to you: Immediately opt out! In various articles on its website, the IRS is specifically warning against the use of third-party companies promoting this ERC service. For links to these articles, read the website version of this story at PMQ.com/ERC.

Why should you be concerned?

If your ERC claim was prepared by a company not normally in the business of payroll tax compliance, the IRS will notice. And it’s possible that you will receive a tax inquiry from the IRS. In other words, if the IRS is taking the time to warn taxpayers of improper ERC claims, you need to pay attention!

What should you do instead?

If you have a CPA or trusted advisor who is responsible for filing your annual business tax returns, send that person any email or text you receive from a third-party promoter along with this article and kindly ask if or how this impacts your business. The ERC is a legitimate program if you qualify.

What are the actual deadlines for filing an ERC claim? Definitely not December 31, 2022. In fact, the IRS has two deadlines. For all quarters in 2020, the deadline to apply for the ERC is April 15, 2024, and for all quarters in 2021, the deadline is April 15, 2025.

For the second quarter of 2020, Form 941, an employer’s quarterly federal tax return form, was originally due on July 31, 2020; for the third quarter, it was due on October 31, 2020; and for the fourth quarter, it was due on January 31, 2021. All of those returns are considered filed on April 15, 2021, which sets the threeyear statute of limitations for amending and then be kind to your advisor as you discuss with that person if an amended tax return can be filed.

In various articles on its website, the IRS is specifically warning against the use of thirdparty companies promoting this ERC service.