The ERC Rollercoaster Continues

The drama and confusion around Employee Retention Credits continues into 2023 with new guidance creating more questions than answers. In this episode, Roger and Annie provide an update on the latest ERC developments, including new problems facing practitioners and small business owners as well as lingering unresolved issues around amending returns, repayments, and fraud. Join Roger and Annie as they attempt to make sense of the ongoing ERC mess in 2023.

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The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

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• (00:00) - Welcome everyone to another episode of Federal Tax Updates: We have some ERC updates
• (07:33) - You can still apply for the ERC credit
• (13:07) - If you don't do ERC make sure your clients are working with a legit company
• (19:20) - What if a small business got some ERC money that they probably shouldn't have?
• (31:03) - What qualifies as "Supply Chain Interruption?"
• (31:59) - Roger gives Annie a test if someone would qualify for ERC
• (40:31) - What should the people do if they have legitimate ERC credits?
• (48:06) - Key takeaways about ERC you should know today!
• (51:20) - Wrap up. Please subscribe so you don't miss an episode

Creators & Guests

Host

Annie Schwab, CPA

Franchisee Operations Manager at Padgett Business Services

Host

Roger Harris, EA

President at Padgett Business Services

What is Federal Tax Updates?

CPAs, Enrolled Agents, and Tax Preparers can keep up-to-date with the latest federal tax information while earning NASBA approved CPE credits and IRS approved CE credits by listening to the bi-weekly Federal Tax Updates podcast. The hosts Roger Harris and Annie Schwab have over 75 years of tax experience between them, which has been featured in various media outlets including Wall Street Journal, USA Today, The Morning Business Report, Bloomberg Business News, and Accounting Today.

Warning: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

FTU- e15 [Final]

Roger: Well, hello, everybody. Welcome back to another Federal Tax Update podcast. And this is Roger and Annie. How are you today?

Annie: I'm doing great. And you doing.

Roger: Doing fine. Trying to stay cool in the middle of the summer. But hey, it's August in Georgia. What do you expect?

Annie: August in Texas isn't much better. I can guarantee that. Actually.

Roger: Probably have it worse than we do.

Annie: I just might. It's hot.

Roger: Well, we finally gave up every podcast we do. We have to talk. We seem we can always talk about the IRC. So we're coming back and doing another podcast on the IRC because there's some new developments, some new information. So today we're just going to kind of go back through the IRC. We'll touch on some things that we've talked about before, We'll give you some updates, we'll talk about things that we know, things that we still don't know and kind of the lay of the land. So any, you know, why don't you kick us off and we'll just kind of go through and hopefully bring some people up to speed. And this is relevant before we get into this. If you didn't do an IRC claim because you thought you didn't could avoid it, you still need to listen to this podcast because if you prepare tax returns and you have people who come to you that got an IRC claim, you're going to hear some things you need to know. So just because you did not personally complete a claim for an IRC doesn't mean that you can avoid it. If you're in the tax business and you have small businesses as clients. So with that, Andy, why don't you kind of kick us off and we'll go through and bring some old and some new to the table?

Annie: Sounds good. You thought maybe it was going to end when COVID ended, but this is something that came out of the pandemic. And so we're looking at two plus years now and we are still talking about it. And part of the reason we're still talking about it is it's big money, right? It's a lot of dollars. It's free money in the sense that it's nontaxable. It's fairly easy to get by completing the forms. There's not a lot of back work that has to be attached to it. And in all honesty, when it came out, there was very little guidance and getting the money was easy. So we saw these IRC mills sort of come about telling everyone that they qualified and a lot of people did qualify and a lot of people did get money that they were duly deserving of. However, when there's a lot of money and it's being handed out very fast, scammers come crawling. And that's what we've sort of got ourselves into now. While the IRS took a long time to process some of those IRC credits, the claims they were backlogs, you know, long backlogs out of the pandemic, a lot of people were waiting and waiting and waiting for their checks. It was all done by paper. There was a lot of frustrating nuances associated with new legislation coming out and then we found out you had to go back and amend the returns if you did get the credits. So it was just something else that you had to put on your radar to do. And now IRS is sending out audit notices and the mills are starting to disappear. So we've got, you know, people who thought they either filed legitimate claims or knew they didn't but never thought they'd get caught or whatever the the scenario. But regardless, small business owners left in a bind, tax practitioners left in a bind. And we're going to go through some of the specifics of why I'm saying left in a bind. Left in a bind. But that's kind of why we're still talking about it today. Right.

Roger: And and we have to keep one thing in mind. There's going to be a lot of things that were predictable. There's going to be a lot of things that we're probably going to be critical about, you know, in terms of how everybody reacted to it. Congress, IRS, our industry, small businesses to some extent. But we have to remember that this all came, if you think about it, think about how we all felt at the end of 2020, the beginning of 2021, when the IRC was opened up to everybody. We were still in the middle of a pandemic trying to figure out who was going to survive, how we were going to survive. So things happen. They happen quickly. They happened without a lot of planning and they were all well intended. But as Annie mentioned, when you hand out this much money, the bad guys come looking for it. It's you don't just read this. Right before we got on here, there was a tax preparer. I can't remember where they were that the service just cited for filing false claims, who basically just went around filing claims for people who didn't have employees and.

Annie: Oh.

Roger: Goodness, filed a claim for their own business for $1 million in DRC and they don't have any employees. So the IRS is starting to go out and look for the. The bad actors because there's just so much money going out. So but a couple of things are happening. The IRS is is really taking a different approach to it now, I guess, Andy, when it first started, all we ever heard is why is it taking so long to get the money? Why is it taking so long to get the money? That's all Congress cared about. Now it seems like everybody's focusing on why are they so much fraud in this program and what can or is there anything we can do about it.

Annie: And what should practitioners do and what should the small business owners do? And, you know, they're trying to they're trying to help the businesses who maybe got it and shouldn't have. What do they do? How do they know if they got it wrong? Should they go back to the mill? What do they need to get from the mill? What if I get audited? Who's going to help me? What if I already spent the money? I mean, there's all these scenarios that need to be addressed.

Roger: So we've moved from Why does it take so long to get it to what do we do now in all these different scenarios about I should have got it, I shouldn't get it, maybe I should have got some of it. Maybe I should have got any. What about what I do is prepare and the IRS is issuing some new guidance. They've issued some FAQs. They've they've I think put it they issued what, their dirty dozen tax scams and frauds at the top of the list, you know, with a bullet, kind of like a.

Annie: Hip.

Roger: Hop record or something. So that's why we're talking about it. Again, the IRS has taken some actions. It's going to require us to do some things. We're kind of in a different phase now. We've kind of moved from the where's my money phase to what do I do now that I've got my money? And there's a lot of new issues that are cropping up. So where do you want to start? I mean, again, in terms of bringing people up to speed that haven't been watching the news or haven't attended an IRS forum or don't get the IRS quick alerts or whatever you call them, because a lot of stuff's been coming out.

Annie: Well, I want to before we move on, I want to make sure that everyone knows there's still an opportunity to get this. It's not over. So if you're sitting there listening, what are these people talking about? I want free big money. I'm raising my hand. What did I miss out on? The program is not it doesn't have an expiration date, so to say. So if you're if you're listening about this for the first time and you think you have clients that may qualify for the credit, it's you can still file for them. And we're getting a lot you know, the IRS is how did they say, I don't know how many million they've gotten in dollars worth, but they're still processing. So it's definitely not over. Yeah, that's.

Roger: An important point. If you are a legitimately qualified now, 2020 has an expiration date of statute basically to amend returns, 2021 has a different one, but you've still got time for both years. So if you're a business owner or you have a client that's a business owner who legitimately qualifies, do not let the fact that there's. Scammers out there or mills out there deter you from applying for the credits because they're still out there and they're still do now. I will kind of jump ahead with one comment. One of the suggestions to stop the fraud has been to stop the eligibility to just basically pass a law that says end it. It's over. Now, that would stop the bad guys, but it would also stop a lot of the people who are still eligible. So I don't know that that can pass muster in a political because Congress would have to do that, first of all. Right. Right. So for every scammer you shut down, you're going to hear 5 or 6 people who are eligible say, well, wait a minute, I can't get mine. But what's unique about this as a difference from the loan, if you remember when loans were passed, there was a certain amount of money allocated to it.

Roger: And when that money ran out, p-p-p loans were owed. Is it The employee retention credit was just out of the general funds. I mean, there was no pot of money that could ever run out. So, I mean, theoretically we could drain the federal government dry on employee retention credits and they would still be paid unless Congress takes action. But that is that the commissioner even mentioned in one of his talks that we'll talk about that Treasury might go to Congress and say, you got to cut this off. We just there's just no way to police it where we are. I don't know how practical that is. But as of today, if you're eligible, you can still get it. You can still and you should, because there's again, this is not about telling legitimate people not to do it. It's just how do we stop the bad ones and what do we do as practitioners? So that's one little thing. And 100% right. It's still eligible unless something changes. But I just I'd be shocked if Congress would do it.

Annie: Yeah, And you led me to a point here, Roger. I mean, in order to catch the mills or the scammers or those who didn't qualify for that, they're doing IRS notices and the notices are out there have been sending them out there. There are 16 bullet points, I believe, on the notice that asks you for certain types of documentation verification, the calculations, whether or not it's amended for one year, for one period for two periods, multiple both years, etcetera. And so they're very specific in what they're looking for. How did you qualify? How was your calculation done? What is the supporting documentation for it? So, you know, even I don't know, did you did you hear a number of how many people they've caught so far?

Roger: I read somewhere that the criminal people I don't know if this guy read about today was part of it or a new one, that there's approximately been 12 criminal cases applied against some of the. The mills, which will just use that term, you know, whatever they are. Like I said, I don't know if this person this was an individual as opposed to some of these firms that we hear about. So I don't know if that counts as 13 or if that's one of the 12 or if that goes in a different bucket. But the IRS is really trying to find these people who are being overly aggressive and basically saying. Every business qualifies, you know?

Annie: Yeah. And that's basically what they're what they're saying. And you can qualify for in various ways, you know, reduction, you know, partial or full government shutdown. There's some calculations with decline in receipts. So even if you made money, you might still qualify their supply chain interruption. There's basically three ways to qualify, all which would require different well, mostly the same, but some different documentation calculation, etcetera. So it's it is complex. And unfortunately, these audits are asking for a lot of information. So if a client gets it and they come to you with this, this is what the IRS wants, 16 bullet points. What do I have? I mean, there could be recreation of records, especially if you didn't prepare it and your client went somewhere else to prepare it. Or maybe they prepared it on their own. You know, you're creating the record records verifying that they actually did qualify. And if they did, did the calculation go correctly? Was it reported correctly on the 941? Were the returns amended correctly? I mean, there's a lot of things to look at here.

Roger: And I think one thing that the first thing the audience has to consider is if you decided not to do claims, then you need to work with your clients to help them select legitimate people to do it for them. So again, to determine their eligibility and do the claims, the IRS has started putting out some warning signs that you're not dealing with a reputable company. And part of that is not even a lot of these companies don't even ask for the documentation that would be necessary to prove eligibility. In fact, one little thing that you might tell them to look out for is the I guess it's like their engagement letter or whatever they call it, actually makes the business owner certify that they, the business owner, has determined the eligibility, which again, how many of our clients even know how to be eligible, much less to certify that they are. But even that they still would need certain like if they don't ask for your employee records by quarter as dates of when the government shutdown orders were in place. You know, there's just some obvious things that to do a legitimate claim you would have to have. And these companies aren't even asking for that. So educate your client. Those are big signs about how to make a judgment as to whether or not they're dealing with a reputable firm. They warn about high fees and a percentage. So if somebody says, I'll do the claim and you don't owe me anything, but if you get it, I get 25%. Well, that's not first of all, if you're a CPA or EA, you can't charge a percentage.

Annie: So that's you can't do that.

Roger: That's a sign. But you could charge if you're just a firm, you could charge a percentage and be legitimate. But it is it is a warning. So most of the mills are charging a big hefty fees based on the amount of the claim. And if they tell you, hey, I know your accountant, probably this is what really irritates me. And our profession is a lot of these firms have now changed their marketing to say, we know your accountant told you you weren't eligible. Were there Wrong, come see us. So now they're trying to make us out as the bad guy and saying, Well, we don't know the rules. We told you no, but they're smarter than us and they actually are. So if you're not going to do it and now you're almost to the point that you're better off doing it, and we'll talk about some of the challenges if you don't. Yeah. Then dealing with the after effects of having a mill do it and then they come to you and say, I've got the money now what? Because no, you and they aren't going to like the. Now, what.

Annie: If there's one takeaway from this today? I will say if you have clients that, you know, went to a mill or to another firm, company, whatever, and did get the money, did qualify for the credits and get it, have them reach out and make sure that they have all the documentation calculations, what the mill or that company used for the calculation because you do not want to have to recreate it. If that client comes up with a letter, an audit notice. Right. So make sure that they've got everything that they need from whoever did the claim so that you have that available should your client get the notice?

Roger: Yeah, that's a good point. Warn your clients because all they need to get the money is a 941 x. You don't have to tell anybody how you qualified on the 941 X. You don't have to attach any list of wages or that were used for it. So if all your client gets when, quote, the claim is finished, is a copy of the 941 X, make sure they ask for all the backup documentation that backs up the number on the 941 X because a legitimate claim that should be readily available. There's no reason not to furnish that unless you didn't go through that process. And honestly, I wouldn't file the 941 ex if I were if I were talking to my client, I would tell you unless and until you get that backup documentation where you can look at one piece of paper and see the number that matches the number on the 941 ex, and that piece of paper makes sense to you that you've only got five employees with that piece of paper has 15 on it. That's probably a problem if you see the numbers next to employees that you know they're not making. But if you can't get that backup documentation, do not file the form and do not certainly pay a fee. And if they can't produce it, they're not legit.

Annie: And then if if you if let's say the mill's gone. Right. And the client's like. But no, I mean, I really do qualify. And you're like, well, it appears that you might qualify and you have to start from scratch gathering the records, verifying the calculation, creating the worksheets, you know, asking the questions, did you get a loan? And if you did, which employee was associated with the PCP? Because you can't double dip on those employee wages. So you're doing all this work, which you should need and you should charge for it. So if you end up having to you're in a position where the mill's gone. The client wants to prove that they did get the credit. You think they do qualify, but you're going to have to go through ten steps to determine if the mill did it correctly. Before you can go to amend the returns. That's a lot of work. It's a lot of work. Yeah.

Roger: Even if even if the claim is legitimate, the business owner needs copies of the backup documentation because who knows when and if you'll get an audit where the person who did the nine 941 X will be, what's your relationship with them will be at that time? Because again, we're accustomed to having tax returns with schedules and details and a lot of stuff that says this is where this came from. But literally we're handing out money based on a number put on a line without explaining where the number came from and trying to attach anything to hit that number would be it's hard, maybe impossible. All right. Let's let's ask let me ask you one other question. So let's assume they got the money. The small business owner got the money. Okay. Against your advice to come to you and they go, Hey, Annie, you know, back in 20 or 2021 and you said you don't qualify. You weren't under a government order of any type. You know, again, the other thing you should look at and I'm sorry from jumping around, but there are so many things that where you're located matters. If you were in Georgia, where I am, we weren't under much government mandates for long. We were open pretty quickly. So the time frame for which people could qualify under certain rules was much narrower. They just they weren't we just didn't have government mandates. Now, that's different. If you're in California, that's going to be different if you were in New York or Massachusetts. So one one clue is where are you located, where are your business is located? And if you weren't under a government mandate for about two weeks out of the whole time, you know, there's probably not big money available. Yeah.

Annie: So and you can find that information out on state websites. Most of them have published the type of shutdown, the businesses that were affected, the exact dates, because all of that goes into the calculation. So you're going to need to be able to get that right. Okay. Let me go back to the.

Roger: Point that you just. Okay. Okay.

Annie: So ready?

Roger: I'm ready. One of your clients came to you back in 2021. You looked at it and you said, I'm sorry, you're not qualified. And they go, okay, okay, Well, now they show up and go, Guess what, Annie? You were wrong. I went to so-and-so's company. Guess what? I got a check today for $400,000 from the federal government for the employee retention credit. Now, I had to pay them 150, so. But I got 400. What do I need to do? What are you going to do?

Annie: First, I'm going to say find out if they qualified for it. And if they didn't, I'm going to be the bearer of bad news that says you're supposed to repay that money. You're supposed to send it back. Not just the part that you kept, but all of it. But whether you.

Roger: Spent it that I want you to amend my return. They told me I had to amend my return. Why can't why don't we just amend my return?

Annie: The IRS has been very clear. My response would be 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. I'm sorry. Now I'm going to have to send this client away. To someone else down the street probably who doesn't know much about the IRC and is happy for the business and will continue to work with this client. But now I've lost a good client because they were misled by a mill. Yeah, and and I'm in a bad position. I'm in a bind to have to have that conversation and to potentially lose a long term client and the small business owners in a bind. Because even if they agreed, okay, maybe I really shouldn't have gotten it, they don't even have the money to send back. Right. So what are they supposed to do?

Roger: So you mentioned a key thing that's in the point being is at this point now, once we go through this exercise, we'll talk a little about what the IRS is looking at and talking about. But a key part in my example is they got 400. They were actually entitled to 550 and the mill kept the other 150. But Annie was right. She said, as of today, we'd have to send back 550. Well, how many clients are going to be willing to send to the IRS? $150,000 that they never got? So it makes it very difficult for the only tool that we have to actually be viable. So what do we do?

Annie: I mean, there's well, we don't know yet. We're waiting for additional guidance. And that's and that's the thing is while we keep getting I mean, the IRS is updating FAQs. We've got examples. They're having meetings. There was one in Atlanta they're putting out. You know, they're they're asking practitioners for assistance and asking the good questions. But we're still there's so many unknowns. What if there was just a typo or small error? How do you correct it? There's no such thing as amending it. You know, can you get on a payment plan? What if you volunteer and say, You're right, I didn't deserve it, I'll pay you back, but I don't have it. I need a payment plan. Can you do that? Right.

Roger: And I think will they take short term answers? We do have to wait, because the good news is the IRS is aware of each of these situations at Danny's point practitioners and small business owners and everybody has said, you know, you got to recognize the reality of what happened here and what is fair for that small business owner to come back into compliance. And and he mentioned there was an IRS forum in Atlanta. And the commissioner, to his credit, he was scheduled to speak, which he did. But then after his regular speech to the entire group of attendees at the forum, he held a smaller meeting with about ten practitioners who had experience in RTC to get feedback from them in terms of what are the problems you're dealing with? And and again, to his credit, he was aware of a lot of them and we discussed this problem. What if the guy or girl got, you know, just a portion and and the service is aware that they're going to have to come up with some solution to that problem, But we don't know what that solution is today. So as of today, you got to send it all back now. Yeah, we don't know what the solution will be. So if you wait and the solution is you can only send back what you got and then you can pay back the rest or and I'm making this up. Don't go. Anybody go and say you heard the podcast and said, you can do this. I'm making it up. But you've allowed penalty and interest to accrue while you're waiting on this guidance. So we're just in a rock and a hard place with this.

Annie: Yeah, I know. Yeah.

Roger: And that's why we say you might have just been better off to do them yourself. So you at least you knew they were right or wrong then to trust the IRC mill community to advise your clients and now puts you in this box because now you're the you're the bad guy. First of all, you told them no when they got it. Right Now you're saying you got to give it back and they don't have it. So we're just being put in a really negative position, which could be our best client.

Roger: Yeah.

Annie: And and it's gone on for two years and we don't see it coming to an end. The program is not over. It is something that you had to deal with last tax season. You had to you'll deal with the rest of this tax season and probably on to the next because, you know, prior year returns get affected. And then if that's wrong, then you're amending before you can do this one and you're having to look for the corrected k-1s. And I mean, it's going to be a lot of work for tax practitioners and a lot of headache for small business owners.

Roger: The post I got the money part of this program is probably worse than the how do I get it and why did it take so long? Because there's there's more potential problems. You know, bigger than just waiting for the money. And again, the IRS. Knows all these issues. And we're just hoping at some point to get some kind of guidance and assistance to try to bring these people back into compliance while they have the money, because most of these people, if you get 400,000 today and this is the danger, if you get audited three years from now and you mentioned it earlier, how much of that 400 are you going to still have? You may not have 400 a week after you get it. So having to pay it back is easier when you get it than later.

Annie: And it's really sad. The whole idea of the program was to keep companies from going out of business, right? So they're funneling money into the economy, hoping to keep employees employed, business doors open. And what's going to happen is, on the flip side, two years later, if you had to pay all that money back, that you got from the I.R.S., you're probably going to go out of business, right?

Roger: Because you don't have it.

Annie: Anymore did because you don't have it anymore. So it's it's like the goal of it. Was to help. And yet, because of all the fraud and the delays and the lack of communication and, you know, so many different things, not not one person or department is in in, you know, to blame for all of this. But, you know, at the end of the day, I bet there are going to be businesses that just simply don't have the money to repay.

Roger: You know, there will be.

Annie: And shut their doors.

Roger: And a couple of other things from that meeting with the commissioner is normally a program like this where two years out from enactment or eligibility started. Normally you see the amount of claims dramatically reduced when you're two years out. That's not the case in this, partly because you turn on the radio or the TV, you're seeing constant promotion of it. That's the IRS believes that's because these are all bad claims coming in that the fraudsters are doing it. I think that's a big part of it. But I think some of it is because those of us in our and this is where I think we deserve some blame. A lot of us said, I just don't want to deal with it. It's tax season.

Roger: Or didn't have time payroll.

Roger: I don't do payroll. It's this, it's that. And we allowed the small business clients that we serve to be. We didn't allow it. We encouraged them to go somewhere else because we who were their primary advisor, chose not to. So I think the commissioner obviously is right that the claims haven't declined like normal, but I think it's not just the fault of the mills promoting it. I think. Well, he's right in the sense that the mills are doing all the work, but we allowed that to happen. So I think we're kind of getting penalized for some of our own areas that where we ignored it. There's another interesting thing that happened. I think it was at the end of 2021 before they really souped up the amount of money. Basically you qualified by either having a calculated drop in sales that you just had to meet with just a calculation or you had to have a shutdown that was large enough to qualify. But then they threw in this thing called supply chain interruption.

Annie: That's the one that the mills are.

Roger: Focusing on because it's it.

Roger: Seems to cover damn near anything from the mills standpoint.

Roger: From the.

Annie: Mills standpoint. That's exactly right. But if you look closely, there is specific language in there that has very specific qualifiers. Right. And I think those have been ignored by not only the mills, but I mean, there's some, you know, tax practitioners that didn't dive deep enough into it and have made mistakes, too.

Roger: Yeah, the IRS and this is one, I think, legitimate criticism of the IRS, they just put out, what was it, a week or so ago that some examples.

Roger: Of.

Roger: Supply chain issues and we needed this a year and a half ago, two years.

Roger: Ago, two years ago.

Roger: So we could have something to show our client. So I'm going to I'm going to give you a test, Andy.

Roger: Okay, I'm ready.

Roger: Are you ready for a test? Okay. This is one of their examples. Employer A was not subject to any governmental order limiting commerce, travel or group meetings due to Covid 19 at any time. However, during 20 and 21 employer A experienced several delays in receiving critical goods from supplier one at all times during 2020 and 2020. One employer A continued to operate because employer A had a surplus of the critical goods normally provided by supplier one employer. A assumed that supplier, once delay in delivering critical goods, was caused by Covid 19 employer A acquired inquired and supplier. A vaguely confirmed that the delay was due to Covid 19 supplier doesn't want to not provide a government order from any appropriate government authority and Employer A was unable to locate one. Are they eligible under the supply chain?

Roger: Uh, no. No. But no, I can promise you.

Roger: That if you read that to one of the mills, they would go absolutely, absolutely.

Roger: That the.

Annie: Business was able to operate and continue it despite any supply chain interruption, There was not a full or partial suspension of operations at any.

Roger: Time.

Roger: And the supplier, those goods were could have been available somewhere available. They didn't it COVID didn't have anything to really do. The key thing here is was the supplier shut down by a government order that prohibited them from furnishing the goods and that the business couldn't go get those goods anywhere else. So basically, once that one supplier couldn't do whatever they were doing because. Of a government shutdown. That's what it was intended to to address. But here we're just saying, well, I couldn't get it. It probably was because of COVID and COVID.

Roger: Right.

Roger: I didn't go anywhere else. I mean, and the other thing is and something I read that we heard a lot of from our insurance agent and I'm going to go down and read it again. Employer A was not subject to any government order limiting commerce, travel or group meetings. We've had a lot of people in the insurance business say, I didn't want my employees to come into the office, didn't want my customers to come into the office. So I decided not to meet with them personally. The government didn't say that I made that decision.

Annie: Again, no, not qualifier.

Roger: Because a.

Roger: Lot of people, for various reasons, they sent their employees home or, you know, people decided not to have some of the meetings at the chamber, meetings that would normally be held where you would conduct business. Nobody said you couldn't do them, but people decided voluntarily not to do them. That doesn't make you eligible for the employee retention credit unless you go to a mill and then they'll tell you that does. Those are the kinds of grayer areas that the mills are capitalizing on to to generate these claims and make a good argument to us, because to a small business owner, it probably doesn't matter to them whether the government said you couldn't meet or I decided it seems the same. I couldn't do this event, but the government.

Roger: Couldn't do what I normally do.

Roger: Decision.

Annie: Right. All right. I got one. You're next. I got one for you. All right. What about this one? Employer was not subject to a government order limiting commerce, travel and group meetings. But D employer D could not obtain the critical goods from their supplier, but they were able to get the goods from an alternative supplier. But the cost was additional 35% more. So Employer D could not continue, I'm sorry, could continue to operate its trade or business even though it was not profitable. So it was losing money because the goods cost more. What do you think?

Roger: Yeah. Tough, Tough. No, I mean.

Roger: It's you know, again, there's the question is not is this a bad position for the small business owner to be in? Is this unfortunate? But does it make you eligible for a handout from the federal government to keep your employees working and had that had some government order behind it or some reason, you know, that fit? But under that situation, as bad as that situation is. But again, think of it from the poor small business owner who hears one of these very impressive ads and says, Call us and this is where we're caught. So then the supplier says, Well, you know, your accountant, they're smart, but, you know, we do this full time. They do it part time. They're wrong. You're eligible. And if you agree with me, I'll get you a half $1 million. But if you agree with Annie, you get nothing. No. What do you think?

Roger: Our clients might take a chance.

Annie: Take a chance. And. And they did, you know, and then they'll use the well. But it costs me more. And I didn't make any money. And the whole reason I didn't make any money is because I couldn't get the supplies that I usually get at the cost. I usually get it. And that's related to Covid. And my business couldn't run like it would before Covid, so I couldn't do what I was supposed to do. So I think I qualify. And while I do hear that. That doesn't qualify you?

Roger: No, unfortunately, we.

Roger: Have to separate what the law said and our sympathy with the small business owner for being in these situations. And we are now being put in a very difficult position as being the the bad guy, if you will. We're also kind of stuck in this again, and the IRS is catching up with some of their guidance. But. They're putting out a lot of information, but how many of our small business clients go to the IRS for information? They usually come to us. And so we need to have the tools necessary to, a, convince the small business owner that we were, in fact correct, not the mill. But even after that, we need the tools to bring this business owner in a reasonable manner back in compliance. That's what we're waiting on. And that's kind of where we sit today, though. And again, the IRS is aware of it. The commissioner when was the meeting in Atlanta? Last week.

Roger: Last week?

Roger: Last week. So, I mean, it's only been a week. So let's be.

Roger: I was just about to say, come on, Roger.

Annie: Where's your crystal ball? When when are we going to tell me when when are we going to finally get all the answers to our questions so we can stop speculating and waiting and having these conversations over and over again with our clients? You know, I want to help you, but I still don't know the appropriate way to address this.

Roger: Right.

Roger: And they're coming to me first. I was there was the first congressional hearing on the IRC was also last week and I was a witness at that hearing. And to your point, they wanted to know what could the IRS do to do all this stuff? And I said, but you're coming to us first. You know, So the first thing they need to do is give us the tools we need because a small business owner just doesn't go to the IRS unless they don't have anywhere else to go. And quite honestly, you don't always write stuff in a way that's understandable. So help us arm us with the tools that we need. It was eye opening to hear the people up on the podium or stage or whatever you call wherever. They're always sitting higher up than you. You're down below them, which is probably something to do with power feelings. Higher.

Roger: Yeah.

Roger: How shocked they were to hear about a lot of these issues. Because up until this hearing, all you got, if you talk to people in Congress, is why does it take so long? My businesses need the money. You got to fix that. Well, yeah, What is now come to the realization is they they are getting better at that. They say now they can turn them around in 90 days.

Roger: But a lot of that's what I heard three months.

Annie: So and that slows the process. When you find one that's not legit then you know then it's just a spiraling of notices and communication and back and forth. And what support documentation do I have? Do I need?

Roger: So let's let's change a little bit here. Let's assume that we did the I.R.S. claims or they went to somebody who is legitimate. They got their credits.

Roger: Yep.

Roger: Now they come to us. What do we need to do to bring them in compliance? What's the burden that that's creating and what's the potential downstream problems to to a legitimate claim that now, because we're getting to the point now where we are seeing people who got. Legitimate credits. And they're coming to us and say, what now?

Annie: So the appropriate method would be to go back and amend the business tax return in the year that those wages were paid. So that could be 2020, could be 2021. You're going to have to go back or both. All right. Go back and amend those business tax returns, which actually reduces the expense, increasing the income. Right. So you got these credits, but now you're your K-1, so you got to.

Roger: Give some of the money.

Roger: Back in the.

Roger: Amended return.

Annie: You got to go. Right. Right. And when those get filed. So, okay, you amend the businesses, you get the amended K-1. Now the personal tax returns have to be amended for the additional money. So you've got businesses and individuals of those shareholders, partners of those businesses affected by it. Now you're getting notices for interest and penalty or the penalty is supposed to be and I have seen notices that have waived the penalties. The interest, however, is not you don't abate the interest, the interest.

Roger: You're getting.

Annie: Charged interest. Once you got the money, you get charged interest. So now we're seeing notices not only for the audits, but we're seeing notices for the penalties and interests associated with the amended returns.

Roger: So so remember something else. If you got.

Roger: That half million dollars, you're probably if you're in a 20% tax bracket, 20% of that is going to go back and probably increased taxes on the 20 or 21 return and you're subject to some amount of interest. We don't know exactly how that calculation is being made and we'll get that cleaned up sometime in the future. They appear to be waiving penalties, but you may get a penalty and you're going to have to. The first guidance came out and said if you get a penalty, you got a first time penalty waiver, you got reasonable cause. And it's like, so I got to write all these letters. But we've seen some notices recently where no interest penalty was charged. So we don't know if that.

Roger: Just.

Roger: They've made a universal decision or if this was something unique. So think about it from the small business owners perspective. They got the money. They're thrilled. They got half a million. Well, now they got to pay you to amend 1 or 2 returns, give 20% of it back, or 25 or 30, whatever they're in, and then they're going to get a notice that they owe interest, maybe interest in penalty. They're going to have to pay you to respond to. That is a huge burden still out there as people start getting these legitimate credits, forget the legitimate.

Roger: Credits.

Annie: And a burden to the service, because all of this is happening by snail mail. Right. This is all this is just adding to the number of letters, the number of employees that are having to address these correspondence back and forth. So, I mean, it's it's work on us. It's work on small business owners and it's work on the service. Oh, it's.

Roger: A huge burden because I think a lot of people because when you see this kind of talked about in examples, they always talk about a 1040, you know, so a sole proprietor got the credit and had to amend the 1040. But to your point and you mentioned it touched on it earlier, let's say it's a partnership return and there's 65 partners. So and they got a credit for 20 and 21. So think about it. You got to amend the partnership, return for 20. The partnership return for 2165 partners have to amend their return for 2065 partners have to amend their return for 21. That's 132.

Roger: Returns for.

Roger: One credit.

Annie: And potentially their state, right.

Roger: Depending on the.

Roger: State. So there's this huge additional burden that the IRS doesn't need because that's, again, using my example, that's 132 amended returns that they have to process. That's assuming everybody does it. Let's say 40 of them do it and the other 25 go, what the hell is this? And throw it away and don't amend. Now you've got a compliance issue.

Roger: Yep.

Roger: So now let me tell you something on that. Before you call the IRS and complain to them, they can't fix that one. That is the way the law was written. If you want to call somebody about that problem, call your congressman and your senator. That problem.

Roger: Can who are on vacation.

Roger: With legislative action by Congress, they can't. The only thing they can pass a bill on is to adjourn and go home. But beyond that, they can't agree on anything. So I'm afraid we're stuck with that. But that's a massive now it's a benefit if you want to look at it to us, we're going to get paid for doing all this stuff. But is that the best way for us to spend our time?

Roger: Yeah.

Annie: And am I right there at recess? Right. Nothing's going to happen right now.

Roger: Oh, no. Are they out.

Annie: Until Labor Day or.

Roger: Something?

Roger: No, they're. They're gone for the. They're the only people I know. What was funny when I mentioned I was at the. Hearing. It was on a Thursday and it started in the afternoon and it was getting about 4:00 and. We knew going into the hearing that this was kind of the end of their work week. And not only was it the end of their work week, it was the end of their work month because they were going home until after Labor Day. So we were getting a lot of good back and forth with the members having a great discussion. It got to be 4:00 and it's like, we're done. I got to catch a plane. Goodbye. So Congress is out of DC now until after Labor Day. So nothing's going to happen before.

Roger: It's going to be quiet.

Roger: They come back and we don't know if anything will happen. But the IRC and I keep having to remind myself of this and remind others was a well-intended, probably much needed program. But gosh, we got to learn from mistakes that were made.

Annie: We cannot have a repeat of this.

Roger: Because we're going to look back at some point. And there was a did I read an article? Right? There's 12.5 million claims in $1 trillion or some just unbelievable.

Roger: It's already been. No, it is done. And and it's not over. It's not.

Roger: Over. And nobody knows how many of those are legitimate versus fraudulent and what's the cost of the government. Then you add the burden of how much did you pay to get the claim done, which was probably not as much as maybe I don't know if you didn't do if you didn't do it correctly, it was easy. You just put a number on a form and send it in. But if you did it right, it took a while to go through and match up wages used for people versus wages used within the certain time frame that they had a government and then, you know. I don't know. It's it's going to be a mess. We're going to be talking about this for. We've been talking.

Roger: About.

Roger: Doing podcasts.

Annie: Every single podcast we've done. We've talked about it. And this one was like 100% dedicated to the topic. And there's still more that we could talk about. It's just, you know, we'll be talking about it on the next one.

Roger: So kind of bring us home, summarize why did we do this today? What's new? What should our what should our listeners pay attention to as we get into this? Let's assume for our clients, hopefully we're through doing any claims we may get some from other people did so as a tax preparer heading into the extension deadline, heading into another tax season, what are kind of the key takeaways from our.

Roger: The key.

Annie: Takeaways I think are don't put your head in the sand. There is still a lot of work around the I.R.S. that could land on your desk and you need to know how to address the scenario. Depending on whether you did it, somebody else did it. They qualified. They didn't qualify. They're under audit. You know, whatever. I think if you have clients that went to a third party to get this done and you know about it, reach out to them now and make sure that they have what they need to support what they've done so that should they get audited, you have this documentation available to you, to them, Those would be my two biggest ones. And then I guess the third would be if you didn't get involved in the I.R.S. and you have a client that legitimately qualifies, there's still time. And I think that you you owe them the ability to make the decision if they want to go ahead and do it.

Roger: And they only want I think those are the key points. The only thing I would add is if you don't have a good way to get information coming from the IRS on a timely basis, you need to establish one. Because I do think I don't know if it's going to be this week, this month, but we're going to begin to start getting some. Guidelines that we can. I don't know if it'll be guidance or guidelines or both or FAQs, but the service, as I said, is very aware of the position we're all in where we are, both from a small business perspective as well as the practitioner's perspective. So I think we're going to start seeing a lot of information coming. You need to make sure that your knowledge is up to date so that what you told the client on Monday might be different than what you tell them on Tuesday because you have more information. So make sure you're tapped into getting this information. You don't want to do something and find out that something that came out two weeks ago made what you did wrong.

Annie: So and we'll try to keep talking about it on our podcast. I mean, we'll continue to keep listening to us. We'll try to bring you the latest and the greatest as as we get it with regards to the PRC.

Roger: But, you know, you're it's important.

Roger: Things can happen and a lot can happen in between a podcast. So make sure that's true. Got it. Because this like I said, it's not going anywhere. We're not going to see the mills disappear unless they stop handing out money. And that takes Congress to do it. So like I said, they're gone till the Labor Day, so it's not going to happen in the next few weeks.

Roger: If it ever. And then we're.

Annie: Going to be in fall busy season. So keep your head and ears and eyes open and listening and focused because something could come out and you're just down doing tax returns and it you know, you miss it. Right.

Roger: So so.

Roger: All right. Roger, I think.

Roger: We've we've we've beat this horse today. But as far as we can I'm sure we'll we'll be back talking about it in the future because as this new information comes out and he mentioned it, we'll try to bring it to you because again, we're all in the same boat. The IRS is there with us. They're pretty good when they get around to it. They just need to get around to it a little quicker and hopefully get us some answers. So. All right, Andy, thanks as always.

Roger: Thank you, Roger.

Roger: And thank you guys for listening to today's podcast. Just come back next time for another Federal Tax Update podcast. Bye, everyone.