The IRS recently cautioned businesses from engaging pop-up shop Employee Retention Credit providers who are instructing businesses to overclaim the credit. Inexperienced ERC providers have sprung up, seemingly overnight, and are putting business owners at risk by advising them to claim credits for which they are not eligible.
Businesses must be wary and do their due diligence on a prospective ERC provider before doing business with them. Read on to learn how to determine if your credit provider is trustworthy.
5 Questions you should ask before choosing your ERC provider
1. How many years of experience do you have with complex tax credits?
The ERC tax credit may be relatively new but established firms should understand not just the law but also how the IRS operates and what they look for when claiming a refundable tax credit. Many ERC firms are simply telling clients to claim the maximum amount with little to no documentation for why they qualify. That can be dangerous for a business.
2. How will you correlate the impact on my business to a government order?
Businesses cannot qualify for ERC merely because their business was impacted by COVID. They only qualify if a government order or mandate forced them to adjust business operations. Government guidelines or suggestions are not enough. Many providers are relying on inappropriate orders to stake your claim. Your provider needs to be able to document the exact order that impacted your business, the employees that were affected and the magnitude of that impact.
3. How will you prove a more than nominal impact?
Even if you can show there was an order that impacted your business, IRS Notice 21-20 requires that the impact on the business had to have been “more than nominal” to qualify. That is, you need to quantifiably show that the effect on your business was significant by the IRS’ standard. Notice 21-20 does not make it clear what more than nominal means in every scenario, so it helps to have insights from the IRS.
4. How will you reconcile the other tax credits and incentives I’ve claimed?
The ERC is an incentive that is based on employee wages. It is likely that your business has already claimed other incentives based on a portion of those wages, and you cannot claim credits on wages that have already been used for another incentive. Does your ERC provider know how to navigate your taxes if you’ve claimed multiple incentives such as WOTC, PPP and R&D? Does your ERC provider even know what all of those tax breaks are?
5. Will you provide documentation to the IRS to back my ERC claim?
Most ERC providers do not provide any documentation for your claim. Most will simply tell you what number you should fill out on your 941-X. How do you know the number they’re telling you to submit to the IRS is correct? If the IRS reviews your claim, someone needs to answer that question and all of the questions above. That is why documenting your claim at the time of filing is critical.
A Trustworthy ERC Service
These are important questions to ask any ERC provider because they will help you determine whether the firm actually is doing work substantiating your claim or just multiplying $26,000 times your total number of employees.
alliantgroup has been helping businesses claim complex tax incentives for over 20 years. Over that time, we have added former IRS Commissioners, IRS Division Commissioners and policymakers to our team who have offered their insights to enhance our process. That includes former IRS Commissioner of Small Business/Self Employed, Eric Hylton, who was at the IRS as ERC was rolled out and has joined as our National Director of Compliance.
Our comprehensive process today includes thorough documentation and substantiation by our tax experts as well as multiple levels of legal review. We will quickly and honestly determine whether you qualify or not based on IRS guidelines and regulations.
Reach out today if you want the truth about your ERC claim.