Employee Retention Credit (ERC) – What Tax Pros Need to Know

employee at restaurant

The Employee Retention Credit (ERC) enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) was a blessing for many businesses during the COVID-19 pandemic, providing much needed financial assistance to help keep staff on payroll. When Congress changed the law allowing Paycheck Protection Program (PPP) borrowers to retroactively claim the ERC under the Consolidated Appropriations Act, 2021 (P.L. 116-260), which included the Taxpayer Certainty and Disaster Relief Act of 2020 (TCDRA), the flood gates opened, and many more businesses were eligible for the ERC.

ERC – Not for the Faint of Heart

Determining ERC eligibility and making proper calculations to claim the credit is not for the faint at heart. There are limiting criteria that lurk outside the tax returns such as:

  • deemed elections on PPP loan forgiveness applications, and
  • aggregations for businesses with common ownership.

Some of the eligibility criteria in the initial IRS guidance caused confusion. Now, the tax preparation industry is being overrun by companies selling ERC claims or ERC processing. Our clients are being bombarded with advertisements to claim the ERC when they may not be eligible.

Bogus ERC Claims Abound

How bad is it? IRS Commissioner Danny Werfel, speaking at the Nationwide Tax Forum said, “The amount of misleading marketing around this credit is staggering, and it is creating an array of problems for tax professionals and the IRS while adding risk for businesses improperly claiming the credit. A terrible scenario is unfolding that hurts everyone involved – except the promoters.”

The IRS has added bogus ERC claims to its annual list of Dirty Dozen tax scams released in April.

Necessary Skills for Tax Pros

Having a clear understanding of who qualifies for the credit, how to calculate it, and how and when to claim it are necessary skills for every tax practitioner for three reasons:

  • First, tax pros should be able to determine if their client is eligible for the credit and be able to claim the maximum amount for them.
  • Second, tax pros will need to un-educate their clients from all the misinformation they have received in the barrage of ERC advertising.
  • Third, tax pros will need to know how to advise clients who claimed the ERC erroneously while respecting their professional responsibilities, including obligations under Circular 230.

Take a Deeper Dive into the ERC with Western CPE

Interested in taking a deeper dive into these complex ERC issues for CPE? Stay tuned for Western CPE’s new ERC update course with expert instructor Mark Seid coming to your inbox soon.

Mark Seid, EA, CPA has over 25 years of experience in field of taxation focused on tax controversy. A National Tax Practice Institute graduate, Mark is admitted to practice before the U.S. Tax Court. He has served as an Internal Revenue Agent with the IRS in San Jose and San Luis Obispo, California, a state director for the California Society of Enrolled Agents, and the chair for the society’s Finance and Budget committee. He regularly presents courses to tax professionals on issues affecting small businesses.

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