Accounting Today: Risks Associated With the ERC

As published in Accounting Today | by Jason C. Melillo, 4/18/2023


This excerpt is from “Risks Associated With the ERC.”  Read the full article now in Accounting Today.

[…] We have seen many questionable claims by ERC mills, one for example saying, “All businesses impacted by supply chain disruption are eligible for the employee retention credit.” While there are legitimate examples of businesses qualifying for the ERC due to a supplier being subject to a COVID-related government shutdown, many of the supply chain disruptions in 2020 and 2021 were not related to domestic government shutdowns and therefore would not likely qualify under this circumstance.

The IRS has issued multiple warnings to taxpayers and preparers. In November the agency issued COVID Tax Tip 2022-170, “Employers: Beware of third parties promoting improper employee retention credit claim.” On March 7, the IRS issued IR 2023-40, a renewed warning urging people to carefully review the ERC guidelines before trying to claim the credit as promoters continue pushing ineligible businesses to file.

The Office of Professional Responsibility has now weighed in providing a bulletin, Issue Number 2023-02, to further address tax preparers responsibilities under Circular 230. The bulletin provides this guidance: “Section 10.22(a) of Circular 230 requires a practitioner to exercise due diligence in preparing and filing tax returns or other documents on a client’s behalf with the IRS and in ensuring the correctness of the practitioner’s written or oral representations to clients and the IRS.”

Taxpayers and their CPAs need to be vigilant when considering who to use to help identify and calculate Employee Retention Tax Credit Claims. Under the AICPA Code of Conduct, Section 1.300.040, “Use of a Third-Party Service Provider,” is relevant in this case:

.01. A member who uses a third-party service provider to assist the member in providing professional services such as bookkeeping, tax preparation, or consulting or attest services, including related clerical or data entry functions, is required to comply with the “General Standards Rule” [1.300.001] and the “Compliance With Standards Rule [1.310.001].

To accomplish this,

a. Before using a third-party service provider, the member should ensure that the third-party service provider has the required professional qualifications, technical skills, and other resources. …

b. The member must adequately plan and supervise the third-party service provider’s professional services so that the member ensures that the services are performed with competence and due professional care. The member must also obtain sufficient relevant data to support the work product and comply with all technical standards applicable to the professional services. […]

Continue reading the full article available now in Accounting Today.

Contact us today for help with the ERTC and other important credits.

KBKG is providing the following services to assist with ERC:

    • Determine if the employer qualifies, and if so, for which quarters,
    • Determine which employee wages qualify
    • Calculate credits, including analysis of PPP interplay, and
    • Reconcile actual credits with advance credits requested
    • Prepare reconciled data for Form 941-X
    • Prepare documentation supporting a business’ qualifications

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