with the ERC provider so that the retailer would not be on the hook for more than $250,000 in fees. They have now engaged us to conduct a new ERC study. TOOL MANUFACTURER This case involves a tool manufacturer based in a rural area. After a few short phone calls with an ERC provider, the manufacturer was informed it qualified for an ERC claim amounting to more than $750,000 based on canceled trade shows. The manufacturer signed an agreement with that ERC provider based on the estimate, then contacted their CPA about the windfall. The CPA expressed skepticism immediately, concerned about the lack of evidence to substantiate a claim that large. He also knew that the manufacturer had not experienced a decline in revenue through the pandemic, raising further alarm. The CPA contacted alliantgroup for a second opinion to determine if this claim would stand up to scrutiny. Our analysis: Gross receipts? There was no significant decline in gross receipts. Qualifying business disruption? There was no evidence showing the trade shows were cancelled due to government orders, nor that the trade shows were cancelled generally. More than nominal impact? The analysis did not show a nexus between the closure of trade shows, nor the manufacturer’s supply chain issues and the manufacturer’s more than nominal impact. Qualifying mandates? The government order referenced was simply the emergency declaration, not a specific government order applicable to the manufacturer’s suppliers. Substantiation and documentation? The analysis stated that the manufacturer had to wait longer for materials but made no mention as to how long or how much longer they had to wait in comparison to 2019. After a review of the ERC study and related documentation, we informed the manufacturer that the ERC study would not withstand IRS scrutiny in the event of an audit. As a result, we advised the manufacturer not to file the claim. They were able to disengage the ERC provider and legal action was taken to obtain a refund of the manufacturer’s down payment. Again, the manufacturer subsequently came to us to perform a new ERC study. Moral of the Story When it comes to the ERC, it’s the Wild, Wild West. The smell of gold (fast, easy fees) has lured these “pop-up” ERC providers to promise the world without doing the necessary and meticulous research and documentation to properly qualify and quantify a company for ERC. The CPA may be stuck in the middle between a drooling client hungry for cash and the responsibility to perform due diligence before preparing and signing that tax return proposing a huge refund. These cases exemplify the importance of consistently exercising one of our great CPA traits: “professional skepticism.” In doing so, along with thorough due diligence, we are able to ensure that our clients receive both the best answer and the most appropriate solutions for their specific situations. Unless you have absolute comfort with your client’s ERC provider, a legal “second opinion” may be in order. Rick Meyer, CPA, MBA, MST has served on various tax committees over the past 40-plus years. He is a director for alliantgroup, a national firm that works with businesses and their CPAs to identify powerful government-sponsored tax credits and incentives. For more information, email rick.meyer@alliantgroup.com. 1 Internal Revenue Service. “Employers warned to beware of third parties promoting improper Employee Retention Credit claims.” IR-2022-183. Oct. 19, 2022. https://www.irs.gov/newsroom/employers-warned-to-beware-of-third-partiespromoting-improper-employee-retention-credit-claims. 2 Internal Revenue Service. “IRS issues renewed warning on Employee Retention Credit claims; false claims generate compliance risk for people and businesses claiming credit improperly.” IR-2023-40. March 7, 2023. https://www.irs.gov/newsroom/irsissues-renewed-warning-on-employee-retention-credit-claims-false-claims-generatecompliance-risk-for-people-and-businesses-claiming-credit-improperly. 3 Internal Revenue Service. “To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims; concerns from tax pros.” IR-2023-169. Sept. 14, 2023. https://www.irs.gov/ newsroom/to-protect-taxpayers-from-scams-irs-orders-immediate-stop-to-newemployee-retention-credit-processing-amid-surge-of-questionable-claims-concernsfrom-tax-pros. 17 www.nescpa.org
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