The COVID-19 Employee Retention Credit (ERC) program has provided a lifeline for many businesses. However, questionable claims and muddy guidance have made ERCs a major burden for tax preparers and advisors trying to serve clients. On a recent Federal Tax Updates podcast, Padgett hosts Roger Harris, EA, and Annie Schwab, CPA discussed the key challenges ERCs create for their profession. Indeed, since the podcast was published, the IRS has put out a significant announcement placing a moratorium on ERC claims through at least the end of the year. While a positive step, it is just another layer of complexity to this credit.
Dealing with Fraudulent ERC Claims
A major difficulty is clients coming in with potentially fraudulent ERC claims obtained through “mills” aggressively promoting the credits. As Schwab notes, these preparers must tread carefully: “The IRS has been very clear to tax practitioners that they should not perpetuate the fraud and that we should not amend a return for credit that we believe or know to be illegitimate.” (00:22:07) Verifying murky eligibility criteria and documentation from mills becomes a messy, risky process.
Fixing Incorrect ERC Claims
Even with legitimate credits, untangling convoluted calculations done by mills creates headaches. As Harris explains, “You got to amend the partnership return for 2020. The partnership return for 2021. Sixty-five partners have to amend their return for 2000. Sixty-five partners have to amend their return for 2021. That’s 130 returns for one credit.” (00:43:22) Recreating records and amending multiple returns devours huge time.
Advising Clients on ERC Issues
Guiding clients through ERC pitfalls also frustrates advisors. Schwab notes the bind of telling clients credits are invalid: “I’m going to have to send this client away. And now I’ve lost a good client because they were misled by a mill.” (00:22:07) With evolving IRS rules, providing accurate guidance becomes precarious.
Evolving Guidance Complicates Matters
Indeed, shifting ERC guidance itself also burdens preparers. As Harris says, “What you told the client on Monday might be different than what you tell them on Tuesday because you have more information.” (00:49:34) Absorbing complex new IRS rules strains resources. Meanwhile, clients seek simple, concrete answers.
In summary, questionable claims, workload headaches, client conflicts and swirling guidance have made ERCs a bear for tax professionals. As Harris emphasizes, “This is probably worse than how do I get it and why did it take so long? Because there’s more potential problems.” The impact of ERCs continues as a painful thorn in the side of preparers.
Get ERC Help from the Experts
If you’re a tax pro struggling under the burden of Employee Retention Credits, Padgett’s dedicated ERC team can help. Members of our franchise network have received ERC support since day one. From validating claims to managing audits and advising clients, we have the expertise to guide you through the maze. Contact us to learn more about our tax support and more for tax and accounting firms.