With Nick Pantaleo and Dan Chodan
On Episode 142 of The Unique CPA, we take a look back at Tri-Merit’s Live Chat featuring Randy Crabtree, Nick Pantaleo, and Dan Chodan discussing the changes in the Employer Retention Credit (ERC), the impact of the moratorium, and the benefits of the amnesty and voluntary disclosure programs for the coming year. They delve into the Tax Relief for American Families and Workers Act of 2024, risks of litigation, and the importance of detailed filing. They conclude with an analysis of the new bill’s expanded aspects and the need for voluntary disclosure.
Hello, everybody. Very excited for our live Unique CPA podcast sponsored and really put on, by Tri-Merit Specialty Tax Professionals, which is an organization that I founded, or co-founded 17 years ago, and an organization that did a lot of work with the Employee Retention Credit, which as we discussed today may be coming to an end quicker than we expected. So today’s overall theme that we’re gonna discuss is the Employee Retention Credit, ERC, ERTC to some of you. I like to leave the “T” out because that’s way too many initials to have to say in one mouthful, but we’re gonna discuss that.
Let me give you a little, set the stage up for what we’re gonna do today, and then I’m going to just hand it over to these two to introduce themselves. So, really, it’s ERC. You all know ERC. We’re really almost 4 years into ERC from an initial definition in the CARES Act of March in 2020. Just to give you some background, none of us got all that excited about ERC when it was initially defined because of its not playing well with PPP. You kinda couldn’t do both—and not kinda—you couldn’t do both. But then we got a change in that at the end of 2020 with the Consolidated Appropriations Act that eliminated that exclusion: If you took a PPP, you could start to take ERC. Many of you know this background, just wanted to really set the stage.
So we’re really, we really are about three years into the ERC as we all know it now—the ERC that was redefined at the end of 2020. And we all felt we had a pretty good handle on this, we thought it was a great opportunity, which it was for taxpayers, we got a lot of guidance in the first, you know, six months of, the year of ’21 through notices from the IRS, and we got a lot of guidance from people like Nick and Dan here too, as this was coming out, because we were all scrambling for information: How does this work? Who qualifies? You know, how do you calculate it? What’s the interplay between all these different incentives in the ERC? So all that stuff was trickling out. But these two were at the forefront of that, and and that’s why they’re on here today.
Unfortunately, anytime you have something this potentially lucrative to taxpayers, and beneficial—the whole point of ERC was to be beneficial to taxpayers. We’re helping companies that were in need. We’re going through a pandemic, and we had companies in need. Unfortunately, when that happens, you’re going to see people try to take advantage of those rules. And we did see that. I know Dan and I and Nick probably, by mid ’21, were already seeing it. And maybe even earlier than that, we were seeing that the people were taking advantage of this. This is the way I look at it: changing the rules to fit their needs, not following the rules that Congress and IRS had set out for us. And so that became an issue, but we continued, obviously, helping the taxpayers that really take advantage of this.
Man, I am 4 minutes in and I haven’t even let these guys talk yet! Let me give Nick and Dan a chance to introduce themselves and their ERC history. And, honestly, guys, you know, put it all out there, because you are experts in this industry. Nick, I’m gonna start with you.
Okay. So Nick Pantaleo, one of the partners at Tri-Merit. Really, my biggest role in ERC was in helping start up and establish what the guidelines are for qualifying. I worked hand in hand with the head of our ERC division constantly, looking at new scenarios that pop up. So that’s been most of my role, along with, you know, working with the IRS on all the issues that popped up with clients. And along the way, I’ve been very fortunate that a resource like Dan has been out there, because Dan has always been the one breaking the news. So I’m kinda doing a lead in to you here, Dan, but very often there there’s issues that popped up, and I’d email Dan, and we’d bounce ideas off each other to see, like, hey, are you seeing this? How are you treating this, or are you seeing this, like, a scenario out there?
And one thing before I hand it over to Dan, Nick, you probably, have signed more 941-Xs than than most people in the country, I assume, as well, right?
Yes. Yeah. I was involved in, pretty much the filing of all of our 941-X forms.
Yep. And the rules that changed on that. I mean, because each 941 seemed to be different each quarter, and so you were on top of that. Alright, Dan. Over to you, and before I let you jump in, I just wanna reiterate what Nick that Dan has been so helpful to me personally. When we first jumped into this, I got addicted to ERC, and I actually think I remember the date: January 7th of 2021. I was actually on vacation, I heard about this change in the Consolidated Appropriations Act, and I was just—I couldn’t get enough.
I started digging into it, and one of the first people that I was introduced to, not personally, but introduced to through Twitter, as people told me, you gotta go see this guy, Dan Chodan, because he’s putting a lot of good information out on ERC. So if there is a king of Twitter ERC—no, there is a king. There’s not even a question mark. There is a king of Twitter education on ERC, and that’s Dan Chodan. And Dan, welcome to the live broadcast and please give us an introduction.
Sure. Yeah. I really have been a nerd for this program as well, just like the two of you, you know, from the very beginning. Been a lot of fun. Built it up here at Trout CPA for our clients first, and then that’s turned into helping others, referrals beyond that, of course, as there’s just lots of businesses that needed to take advantage of this. But it also grew really into just helping other professionals doing consulting around it, just the technical aspects, because I’ve been really outspoken about it, I’ve had a lot of those opportunities, helping the AICPA build some resources, on some of their platforms, town hall, and podcasts. So that’s been really fun and just getting to know others that are dealing with these same issues, and just being able to get to know and see the quality professionals that are out there and firms doing great work in this area. So it’s been a fun thing.
Sad in a way, that all this knowledge is gonna be useless in a week, most likely. But here we are. You know, we had a great run with enjoying and helping clients through something that was so positive. It was so meaningful. Probably one of the most meaningful things we could do for a client in helping with these relief dollars, and things they would not have otherwise seen. But I would also be remiss if I didn’t take the opportunity here, jumping on, been a big fan of the podcast, of course, a fan of Randy and seeing you do more and more. I gotta say congratulations on the Top 100 Most Influential Accountants. That was well deserved. Great to see that. And excited to see you keeping doing things out there, speaking, the conference as well you did. So congratulations again. Very well deserved.
Well, thank you. I honestly, just a couple more things: Dan was the first one to really explain the owner rules, the 50% or more owner of a business, you know, doesn’t qualify to take ERC. He was the first one out there with that. He was out there debunking the OSHA claims, that OSHA will qualify you for ERC. So Dan’s been on top of all that from day one.
So let’s get into what we’re gonna talk about today. I’ll set the stage. A few things that we wanna touch on, and it’s gonna be a discussion. We’ll talk about the moratorium. You know, that is something that may not matter anymore in a week anyways because, they will stop processing past claims, but we’ll talk about how that’s affected. There’s two versions of an amnesty program we’ll touch on. We will touch on the Tax Relief for American Families and Workers Act, which could eliminate, at this point as proposed, to eliminate the ERC program, January 31st. We’ll talk about an increased statute—the IRS can look at this—and tied with that then is there’s some penalties that can be associated. So, hopefully, we’ll touch on some of that during the discussion. But first, either of you, you know, let’s just do a quick, maybe moratorium update. Anybody wanna jump in on that one? I’ll let you guys decide who goes first.
Oh, sure. Now it’s been certainly an interesting time to talk to clients who say, what is the timeline and say, in response, we have absolutely no idea. This is uncharted water, you know, at least through December 31st, has now turned into something later and what’s the speed when this does restart. The backlog’s huge. It it’s still a great unknown. So my line has been in regards to the moratorium, if you have a valid claim, it’s in there. It’s filed. Don’t expect the money. Don’t plan to spend it. Don’t don’t plan on a date. We’re just gonna monitor it. And it’s not a matter of if, just a matter of when—and when is, who knows?
The latest word from Commissioner Werfel was they are in a scanning process now and that they need at least four more months to get through that process before they consider the lift. So we’re talking about maybe sometime in the summer at the earliest that they may start some of this again. How fast and and what that looks like at that time, could it be pushed later—I think we’ll see. That that process could be helped along. By this January 31st cutoff as well. You know, that backlog, yeah, if that happens, would be frozen. The claims are what they are at that point, and it’s just a matter how fast do they start working through them. But at least it won’t be growing from there.
So that’s certainly an interesting thing to look at. You have to wonder if some of what we’re talking about here, you know, the withdrawal process, perhaps, that is also gonna be aligned with the moratorium lift, when it’s announced at some point. You know, there’s been no announced end date to that. That was also said to be at least through the end of the year. So more to come, but the line, of course, for, unfortunately, clients, is don’t expect it, don’t count on it, don’t spend it in advance. and if it’s a nice surprise as a Christmas present, maybe plan on Christmas of next year, not this year at this stage with what it is and what’s going on. It’s just the unfortunate result of the negative aspects of this program.
And honestly, we’ve been in a very similar timeline of advisement. When this started, we started telling people like, hey, it’s definitely not happening through the end of the year. We know that much, at least, so how far does that extend? That’s where you don’t know. And I was telling clients like, hey, if I’m in your shoes, I’m happy if it happens summer of 2024 for processing time, but you should expect, like, this could take a year. You know, if you just filed in the fourth quarter, it’s very well, like you said, it might be Christmas. You shouldn’t have an expectation that’s gonna come quick, and trying to convey that to clients to let them know. Yeah. I mean, it’s not a fun discussion. Alright? But that’s the fact.
And clients who are asking, you know, and there people are asking about deadlines, it has to be later. It’s not gonna be any time soon. And to Dan’s point, you know, are they going to time it with the end of the amnesty program, which is gonna happen in March? That could make sense, right? Give people time to get as many claims withdrawn as possible, and then, okay, we’ll stop the moratorium, and we’ll start processing after that. Maybe, or it could be if this bill passes and they, you know, end the program 1/31, maybe that’s when we’ll start processing. We don’t know. You know, we can make assumptions, but we don’t know that it’s gonna be soon, so you have to assume it’s gonna be extended. There’s some dates out there you can take guesses at that it makes sense to align, but the summer is hopeful.
And so I think one of the key things to point out in this moratorium is, and that there’s been a misnomer, I think, out there by a lot of professionals thinking, okay, I shouldn’t be filing during the moratorium because, you know, their rules could change. That’s not happening, and if this tax relief bill goes through, which could be as early as Monday the 29th, you will not have an opportunity to submit again. And so you should, if you have valid claims—Dan mentioned this already—if you have valid claims, those claims have to be sent in now, because you’re putting it at risk. Cause if you don’t get it in a week from today, they’re very well not going to get it in. And these things don’t happen overnight. This is not an immediate on your end as a professional to figure out the numbers, this is not a quick calculation.
So alright. Let’s get to the amnesty program, because there’s two different versions of this. There was one that was announced—it was in August or September of last year, I think it was September, right when the moratorium started, that pretty much, I can summarize this and you guys can jump in—pretty much the first version said, if you have not received a refund yet for a claim you submitted, or you’ve got the refund check, but you have not cashed it, you can actually send us some information and say you are not gonna accept this money, is the bottom line, and we are going to send a check back or don’t send us a check. And that was the first version of an amnesty. Anything I missed on that? Any highlights you guys wanna add to that?
No. I mean, the first one was pretty straightforward. It was, you know, more of a withdrawal program than an amnesty program because it’s for people who hadn’t cashed the checks yet pretty much. You got those checks, they’re either sitting there waiting for it, or you made a claim in process, and you’re not sure about it, you’re able to either fax in a form and they would essentially cancel out your claim, or you’re able to actually send back the checks, you know, as you mentioned to not accept it. It’s pretty straightforward and not as, for, lack of a better term, beneficial as the new amnesty program.
There was one surprise I’d highlight in that even if someone was under examination, if it was a claims exam, they hadn’t cashed the checks, you know, hadn’t been paid yet, in a claims exam upfront before payment, they could utilize the withdrawal process and not be subject, you know, to any other harm. You know, it may make it like it never happened, basically. This is what the withdrawal program does, right?
So that was a surprise. It’s a departure from, typically, if you’re audited under an issue, there’s no way to get out of that, right? The classic qualified amended return procedures and other other ways. Once you’re caught, you’re caught, and you can’t necessarily get out of the interest and penalties and/or whatever that might be. So that was the first indication that the IRS is trying to look for ways to make this easier. And, again, if they can save resources by going ahead and even someone under audit, if they can just not take that money, if they can withdraw that claim, alright, that’s one more case close, and they can move on and save those resources, right?
And that came out even more so in the voluntary disclosure program. There was hopes that there would be something really beneficial within that, but personally, I didn’t think it would go as far as it did. It was a surprise there to see the IRS, you know, really put a stake in the ground, And “We want you to take advantage of this. We want it to be easy. We want it to be beneficial. We want this to be your absolute best opportunity to get it right.”
Yeah. This voluntary withdrawal program is what we’ll discuss now. And just ,when this came out, my reaction was “What?! Wow!” I mean, that was pretty much the reaction, because they are—one, that they just don’t have the resources to audit all the inaccurate claims that were submitted, and so rather than having to try to audit all these, let’s let you voluntarily give us the money back, and we’re gonna give you a benefit for that. But if you don’t, then there’s all these potential penalties that kick in. So, Dan, I know you’re pretty up on this. You wanna kind of explain this program that came out, what was it, the end of December, I think?
Yeah. It was a little bit buried, right before the holiday. They did get it out, before the end of the year, which was what they were were saying. So, great benefit of the program in that it eliminates the audit risk. It eliminates the penalty risk. It is only an 80% repayment. They’re taking into account the idea that many of these that might not have filed valid claims were taken in by someone charging a large fee, and it’s gonna be hard to repay money that they didn’t necessarily get. So that was a tremendous benefit.
Also within the program, the interest received on the refunds would not have to be repaid, full wage deduction, for ERC, even though only 80% is being repaid. So the tax implications of this are even better. And, yeah, it’s, basically all around very flexible, trying to make this as easy as possible for someone that wants to do the right thing, that they can have every opportunity to do so in this program.
So It does have a very limited time frame. We know the withdrawal is also gonna be limited. We don’t know until when, but we have March 22nd on the disclosure program, the actual repayment program here. So that’s a limited time frame. My biggest thought around this is what we’re gonna talk about later. Now we have a bill that changes some things. It changes the environment. This voluntary disclosure program is even more important than when it was introduced. We have an IRS that’s fully funded—overfunded, in some people’s opinions, perhaps—you know, they have funding and they wanna prove they could use it to make things happen. And now, this new bill would give them a tremendous amount of time to do that. So the statute of limitations being longer, and the ability to go after—and I know we’re gonna talk about that bill—but because of that, now the risk of this is heightened. There’s gonna be more interest in this. The IRS has already been tremendously interested in this area because of all the issues because of the huge dollars at stake, and I don’t see that changing.
This is only going to be emboldening the IRS now, to give them the resources that they needed to go after promoters, and to audit more claims in this way. So the voluntary disclosure program I think is only more important, only more valuable, with the moratorium continuing to push out. I have a suspicion, maybe we get some more time, but I wouldn’t assume that, right? You know, the March 22nd is the date I’d operate off of that, but I would not be surprised if the IRS comes out and says, hey, we’re gonna start claims up in the summer or some other time. We’ve had some success with disclosure—we’re gonna extend that, and we’re gonna offer it to more because now there’s this new law with higher risk and higher statute time frames. So maybe we get more along this line.
Again, I would not assume that. The dollars they recoup from this are just gonna be more than they could ever enforce. Even with the larger resources, you can’t audit, you know, millions of claims here, that have gone on, and I don’t think anyone expects that’s gonna happen for the IRS, even with all of what this is. The risk is heightened, but this is still their best opportunity to easily bring these dollars back in. So we gotta communicate with all of our clients—now is the time. It’s unfortunate that it’s in our busy season, but if there’s any chance, now is the opportunity, to look at it, and not just to communicate with those that you’re aware of that may have issues, but to broadly communicate. Because in all likelihood, that spike of claims that happened over the last 12, 16, 18 months, you know, if you’ve seen the charts, the claims just continue to escalate, we may not be aware of them as tax pros yet. You know, that may be money that shows up on a trial balance that we’re not gonna get until February or March and realize, oh, there’s a million dollar deposit. There’s, you know, $100,000 here. So we were gonna be surprised by some of those after the fact. There’s many claims that have happened that are sitting in this backlog haven’t been paid. So having this communication now, it’s a limited timeframe, and we might not find out until later, and the opportunity is gone.
So I urge broad communication, something we’ve done already, to make everyone aware that this disclosure program’s out there. And if they’ve used a third party, it’s not a guarantee, of course, that they have to utilize this, but they should be considering it. It’s a very limited opportunity with a lot of benefit—gotta communicate it.
Yep. And all the benefits tied to it, not just that you get to keep 20% of the tax impacts. When you think about that, like, why would they do that? And you’re talking about, there is widespread fraud for one thing, but the other side of that coin too is, they understand that a lot of companies were just straight tricked. A lot of these mills out there, like, they were convincing these companies that they were qualified, and they had solid arguments that would kind of pull in like, you know, pick little parts they wanted to from the guidance and twist it to make it work. And without having someone else come in and say like, no, it doesn’t work like that, they didn’t know, you know, that they assume that they actually work off and the IRS knows that. They’re aware of that. They want these companies to not be putting these terrible situations where they got this money, it’s paid all back plus penalties, you know, plus interest, because they know that they weren’t fully aware of it.
And you do have an obligation, obviously, as a client to still try to make the best decision to be informed, but there was widespread misinformation out there. The IRS knows that. They’re trying to help these businesses any way they can. So like Dan said, anyone who you think might need to know, it needs to be communicated as such. You could guess in those cases, people who are kind of on the fence, this can help them make that decision to avoid potential audit penalties, because as Dan said with the new bill that does go into play, they have a lot more teeth coming in.
Well, let’s talk about that new bill because we keep alluding to it. We’ve talked about it at the beginning that we’ve got this Tax Relief for American Families and Workers Act of 2024. The key thing in there that we’ve been talking about, that I mentioned at the beginning, is if this passes, which next week, we, you know, do we expect it to pass? I think we probably all expect it to pass at this point. Are you guys—just a quick yes or no? What do you think? 75%.
Yeah. I’d say a matter of just when, not if, is the expectation.
Yeah, okay. So this will pass. And what it will do is it’ll end—no more filings after January 31st by force. That’s the key thing that everybody knows. But there’s a lot more in that bill regarding ERC than just that. So I’ll let you guys, because you guys yesterday on our pre-call, you were having a great discussion on this and what the impacts of the other aspects of this were there. So you guys wanna just jump into it and start discussing it from the penalties, from the statute, everything else that is in this potential bill?
Go ahead, Nick.
I was talking for a while.
Sure, why don’t we start with you know, the six year statute and what that does, not only on the audit side, but with the need to not make protective filings—that was a question and a comment someone put in here. If this bill goes through, it not only extends the audit statute to six years, which just tells you how much they’re gonna go after this program, cight? They wouldn’t do that if they didn’t have the intent that, hey, we’re gonna go audit this. It’s going to happen. It’s why the amnesty program’s in place. It’s gonna be there, but they’re also gonna extend the statute to be able to amend your filings. So a lot of firms are looking at, do we need to make protective filings, for example. With the six year statute when they’re doing, they’re making sure you don’t have to do that. So if something changes in audit, you’re gonna be able to go back to the years and make the adjustments necessary to that. So there won’t be a need to make protective filings. I wanna make sure we answer that comment right away because it was out there. But, yeah, the six year statute, that’s to me. That’s the you know, the additional biggest piece of this because it does fix some of the issues we’re having. It does give them more more teeth for audit, and it does show just how serious they are about making sure that this program is legitimate for everyone who received it.
Real quick, protective filing. So you’re saying the protective filing, you’re talking from the income tax side of aspects. Could the question be, can I do a protective 941-X, because I don’t know the numbers yet, and have the ability to amend it later? Is that something that we need to discuss?
There’s two aspects there, yeah. So I think a lot of the worry had been the mismatch before, of having an issue with not being able to go back and deduct the wages if you were denied a claim later. That’s the income tax effect. So that’s aligned in the bill. But, yes, the 941-X protective claims, this has been discussed a lot, but the issue with a lot of these is that usually a protective claim needs to be based on uncertainty, you know, a pending court case that needs to pass. And so if it’s solely based on eligibility and just, hey, we think that the IRS is wrong, or something of that regard, it’s not necessarily a protective claim in that way.
What I would encourage is if we have partial information and we need to make an estimate, because we have, you know, payroll data, but we don’t have all the other elements of this, you know, filing the best estimate that we can and disclosing that, and an opportunity to adjust that later. So I think that’s different than to say that this is purely a protective claim, because we think well, maybe sometime down the road, someone might challenge something and it could change.
In incomplete cases where there’s estimates that need to be filed, some things are gonna get pushed through. And I would say, yeah, it’s okay to be in that boat being conservative in in that way and saying, hey, we need to file with the best in information that we have before this time as well.
Okay. And then, Dan, you were gonna expand on the six years?
Oh, yeah. So six years is worse than six years. So, you know, we hear six years, and the statute was already three years, and five years for a couple quarters. So, oh, six years, okay, there’s a little more time that points in this direction. But the bill is written 6 years from the later of the statute date or the date of the filing.
So it’s substantially more. We have 2020 claims that were about to have their assessment statute expire this April. Now if you file that 2020 claim today, it’s not this April, it’s six years from today. Because, again, most of these claims were not filed timely. They weren’t filed on original returns or even in the original years for that first April 15th statute, you know, we’ve had the spike in this activity throughout 2022, through ’23. It’s been heavily reported as this wave has come, there’s some estimates that the backlog of claims now is greater than everything that’s been paid already, right? So most of these are gonna have a longer statute, so six years is longer. It’s also much longer in that it’s from the date of filing, not just the regular assessment. So, you know, going back to that voluntary disclosure piece, we have a well funded IRS that’s very focused in this area. It’s not meaning they’re gonna audit every single one, but the audit risk is increased with this moving through, with this expected to pass—that just heightens the need.
Alright. So let’s go—there’s another question that came in. Let’s do this question before we get to the aspect of this bill. If the service conducts an audit of an ERC claim and makes a finding, do you have any sense whether U.S. Court of Federal Claims or U.S. District Court would be a better venue to appeal? I don’t have an answer. Either of you?
Ah, this is outside of what I would be doing in litigation.
Yeah. Yeah. Your best chance at winning one of these is gonna be at that audit, as far as going to appeals. I don’t have a sense of one being better than the other.
I would just say with the litigation, and the thought of some of this—alot of this is based on a pervasive feeling out there that, okay, we can just look at the law itself, and ignore the IRS’s guidance, because it didn’t go through the APA procedures. So we’re going to pick and choose pieces that we like, ignore the pieces that we don’t like, I see a lot, and move forward based on that. But I would just caution everybody in this regard because this is mostly related to more than nominal, the 10% threshold the IRS set out, and in my opinion, is extremely low as a threshold. If we can’t meet that threshold of showing a more than nominal effect, you know, that reduced ability of greater than 10% provide a good or service. You know, if we can’t achieve even that low threshold in the guidance, do we really think we can get an appeal that’s gonna be sustained on something that’s less than that through the courts?
I mean, this will be litigated. It’ll happen, but I would just be very cautious out there you know, when we hear these things because, yeah, I look at this and see the IRS as being very generous, so if we can’t even meet those thresholds, it’s just something to be concerned about, something to be cautious over. And more concerning is that usually these things are happening without the client understanding, right? So a client may not consider a claim or look at it the same way if they get the actual advice that this goes against the IRS’s stated guidance. If you are challenged, you will lose an audit, you will lose an appeal, you’ll have to be prepared to litigate this beyond the IRS because their position has been clear in this and this doesn’t comport with that.
So, yeah, we hear those things a lot. I don’t know that bad advice is really being given, and that changes decisions for clients that they need to be prepared to go to war beyond the IRS, to have any hope and even then, it’s a struggle because I think the bar is set very reasonably.
Yep. I agree with everything you say, Dan. That’s the same thing I was thinking that this is I know there’s a lot out there that makes the rules look gray or even, you know, hard to interpret. To me, they’re pretty black and white. It is pretty straightforward to figure out how you qualify and how you don’t. And I say that because there’s a lot of people pushing things—like the OSHA rules that you had debunked, you know—people were thinking, I can qualify, and and we know that’s not the case. And IRS actually came out and debunked that after you did. They probably stole from you!
But that’s out there. It is honestly any of the money that’s dug deep into it, it’s honestly pretty straightforward. And what Dan said, that you would have to challenge what IRS is saying. You would have to go against the guidance that, to me, is pretty black and white out there right now. Yes. You do and no, you don’t. And so that would be unfortunately, I don’t have an opinion on where we’d be better to appeal that claim. Sorry about that. But I just don’t see us going to that level at all with any clients because I just don’t think you have an opportunity to win.
On going to that level, like you said, Dan, we’ve actually talked to a couple of clients and told them, like, hey, what you’re trying to go for with the angle, that’s exactly what you need to do. You know, you’re not gonna be able to win this in IRS audit. You’re gonna have to go to the next level, and we told them, like, for that reason, like, you know, we can’t, you know, move forward with this, right? Because we have no way to defend this, and we can’t do that. So it’s been out there. We know people have taken that position. Whether they’re intending to go fight it there, I don’t know. I think they just really think they can win it.
Okay. So one thing we did talk about because they did highlight this in the voluntary disclosure. They were highlighting the penalties that are potential if you don’t comply. So do you wanna jump into that now?
Yep. That’s where I was gonna lead us. That’s perfect. I was gonna say, you know, Dan, like, reading through that that bill as far as, like, the penalties, do you wanna touch on real quick what they’re considering an ERC promoter first, with the rules of being eligible for new penalties that you wouldn’t normally be eligible for with how a lot of these shops were set up?
Yeah. And the focus there is definitely those that have done a lot of the work, and then also, those that are charging percent of the refund fees. So, you know, they’re doing a few different things in that, and the definition of it and the penalties that could apply. They’ve also introduced some due diligence requirements within that, which are are interesting and and how that’s gonna actually work. The details of that will be interesting as they come out.
But for now, I think the takeaway is, yeah, they’ve drawn a line in the sand. They’ve made it clear. The rhetoric has been there, and now Congress is getting behind what the IRS has said and what the IRS is telling them. So now, these promoters that are out there, you know, they’re gonna have to report, they’re gonna have to be subject to these things if this bill goes through as we expect. And, unfortunately, there’s gonna be some that are pulled into that that may be filing good claims and just done a lot of it, right? And so, I don’t wanna pretend that everybody that simply falls into the definition is at risk. Frankly, I think the IRS knows the worst players already—they can see many that are signing as preparer already, they can see those that are getting tax authorizations, getting power of attorneys, to see when refunds hit. You know, that’s a key thing for shops to get paid their big fees.
So they can see it already. I think they’re very aware. This is just more information. It’s something else that they can penalize someone over if they don’t do it. It gives them more enforcement teeth I know that definition was tweaked a little already—it could change again before this is finalized and what exactly it is, but there’s gonna be some form of teeth, maybe exactly what it is today that goes into this.
And what Randy was asking about though, I think, was the penalties for the businesses, though, if you don’t participate in voluntary disclosure, what could be the risk? And when as beneficial as the IRS has made this now, It is a warning shot. Alright—here’s here’s the list of all the potential penalties, and I think they threw everything and the kitchen sink. I’ve questioned even if some of those they listed and that release would apply. But there are absolutely some form of penalties, interest alone at 8% to get this clawed back is pretty painful. Not to mention, you know, of course, the credit itself being repaid. So this is the best opportunity for someone to take advantage and repay and they wanna make this loud and clear.
And I think audits will be less lenient going forward after this if they didn’t take advantage of either of these programs. We’ve seen cases so far where there have been audits, and I have seen no penalties assessed in that process, because I think there were businesses that didn’t have good information, that didn’t understand what was going on. You know, some willfully, maybe some a little more ignorantly. It’s a spectrum, but I think the IRS gets less kind going forward with these, and that’s what they’re projecting for sure is that there’s risk going forward on the businesses.
Yeah. I agree. I mean, as soon as we get through that 3/22 and whether or not that gets extended, as soon as we get through whenever this moratorium is running to, I think you get on the other side of that. And they’ve been pretty vocal, like, hey, if you’re not sure of your claim, we have systems pay this back. So if you miss that window, it’s not gonna be good.
Nope! So: If, and Nick, I’m gonna let you go after this first. If you were going to file a 941-X based on a partial suspension, how detailed should you be in your detailed explanation of your correction, line 43 of the 941-X. Nick, can you expand on that?
Yeah. I mean, so all these last minute filings are gonna happen. With line 43, we try to be as specific as we can. We’ve seen people who file them who just say, this is clean for ERC. On our forms, we actually put, you know, we highlight the wages that are qualified, the health insurance qualified, and we highlight, if it is a partial suspension, right, that they’ve met a nominal, you know, impact analysis, in what way, and we highlight the beginning mandate that they qualify under and the ending mandate.
So even if the ending mandate isn’t for that quarter, we have that on the forms. They know, here’s how we assess them as qualifying during, you know, for a partial suspension. This is where it started, this is where it ended. We put that little detail in they’re in hopes that it will help speed up processing, because there’s probably going to be some form of desk audits that are happening with that. So if you’re looking at these forms, does it do anything to the actual filing itself? Maybe, maybe not. And I can’t say. We have had clients who, when we look in the transcripts, they went under some form of audit, but they didn’t actually get an official IDR. The audit got closed out, you could see in the transcripts, and the refund’s gotten issued.
So is that because of information we supplied on a 943? Could be. My thing is, it doesn’t hurt—it doesn’t hurt your case. Helps establish so you’re aware of like, hey, here’s how we qualified. And it’s gonna be looked on more highly than something that’s just saying we’re claiming ERC. Dan, I don’t know if you do something similar.
Yeah. I mean, we have. A lot that will add there: I wish I could tell you that it mattered because I’ve seen them get paid from all types, right, when I’m reviewing other things and helping other pros. So mixed bag to say the least. At this stage, you know, it’s not gonna matter, for much longer, in this kind of question, but I don’t think the IRS is doing very much with those. At least I haven’t seen any evidence of it.
Alright. Let’s start wrapping up with a few final things. The one thing that I do wanna touch on is just hey, we all assume we have a week left. Is there any, you know, advice? I mean, we are under the gun now. People wanna get filed potentially still. There’s people that have apparently been, you know, legitimate claims that for some reason have not, they ignored it. We had a multitude of emails we sent out to legitimate—we felt—were legitimate claims that just haven’t gotten us the information yet. So it’s happened. Dan’s seen it as well. What kind of advice do you have, anybody? Can they get this done in a week, and what should they be doing with their clients?
I’ll go first on this one. Obviously, you know, we were cutting off our date. You know, we sent out an email to all firms that had clients in progress that, hey, any information we need by January 24th, we were telling people the 22nd as well, to try to, you know, let them know, hey, this needs to happen. And if it goes past the deadline, we might not be able to get it done.
So if they are trying to do it last minute, right? Like Dan said, I mean, you can make certain estimates, but make sure at least your qualification, anything you’re taking estimates on has very sound. So had someone reach out to us yesterday, and we kinda told them, like, we can’t get it done in time. However, the stuff they laid out, they laid out some great reasons. They talked about a big camps program that were just completely shut down and made up 50% of the revenue. Like, okay, that time period, you’re in a pretty good spot. How long that went? Figuring that out, tying it to a mandate, not just what you followed, that’s the key, right?
So finding those things, making sure you have something to support it, and then we make your claim because it is last minute, there is the whole rule. Like, it has to be in the mail before the 31st. When you’re actually making your claim, make sure you’re sending it certified mail.
Yeah. Certified mail. Absolutely. Gotta keep those receipts. It’s amazing to think that there’s gonna be some of these because of the mess of the backlog, paper processing, there’ll be claims that fall apart because simply it was left on someone’s desk, and it was never mailed, or lost in the mail, lost by the IRS. It’s sad to think—I’ll throw in PEOs as well. If you don’t have some sort of confirmation that the PEO has submitted, for you, get on that. It is unfortunate to see, but we’ve had cases where it’s been multiple years past now the time that was submitted through the PEO only to understand that it had never actually been submitted. Right? You get passed around. It’s always somebody different. You don’t really know what’s necessarily going on. It’s a sad structure with PEOs, honestly, that it has to be done this way and can’t be done separately. They don’t wanna deal with it either, I’m sure. So some sort of proof that the PEO has actually done this. Unfortunately, I think some have cut it off already, long ago, and then there’s just gonna be gonna be messes. There’s gonna be lost ones in that regard. And part of that is, I think, really mostly just on the PEOs dropping the the ball, is from what I’ve seen. And it’s sad, but that’s a huge area of risk. There’s gonna be lawsuits because these dollars are so big.
For sure. Nick, expand on that real quick because what if, and Dan mentioned it, what if, you know, you submitted a while ago? And, like, for us, we do an 8821—Dan does too—where you can track the progress. What if you’ve seen no action? And do we assume it’s lost in refile? Is there some, hey, we wanna make sure we get something in the next seven days? What if you’d not seen any action on it?
So, I mean, if you’re able to view the transcripts, right, first and foremost, you can see if they have a return received, right? And that’s your best certification, right? Hey, we sent this whether it got closed out or not, and can you use that original filing date, to reply to it being closed out? Because we’ve seen clients where their phones get closed out and they don’t get an IRS notice. They’re supposed to when they get closed out, but it doesn’t happen always.
Like Dan said, you’re gonna have some unfortunate areas where you’ll have to sit there and fight them like, hey, we sent this to you. We weren’t notified while it was closed out. We didn’t have a chance to respond. This is us resending it in to respond to that. You can take actions like that. But if you have proof that it’s on file, you know, with the transcripts, that’s the best proof you can have, right? Or if you call the IRS to ask if they received it. If you don’t have someone’s access transcripts, that’s the best thing you can have.
If you don’t have you know, that proof, right? We told all of our clients, like, if for some reason, when we filed the 8821, it didn’t work, or we couldn’t do their transcripts, we sent an email the last week and told them, hey, for some reason we can’t see whether there’s something that’s not matching the IRS records. We suggest—well, first we ask, you know, do you have your receipt from sending certified mail? If they do, great. We have that proof. If you don’t, refile, have that certified mail receipt, right? You need some form of proof whether that’s verbal or transcripts proof from the IRS that’s on file, or you have that you know, proof of receipt. You need one of those three. If not, you need to resend.
Okay. That’s great, Nick. And so just, I think we went through quite a bit today. There’s a lot of information out there. There’s a lot of things under the gun right now. I’m gonna give you each an opportunity—anything we potentially missed or just a wrap up that you wanna do, and Dan, we’ll start with you.
Sure. Well, I think maybe the only thing we didn’t cover was just the expanded aspect of the bill. I know we’re just talking about ERC today, but if you’re a practitioner, keep your ear to the ground—this year is gonna potentially be more unique. We got the research and development, amortization, bonus, child tax credit, interest limitation. There’s a lot of effects, potentially retroactive. I don’t think you could file a return today if you wanted to anyway, but this is gonna be a year to not be in a rush. We’ll see how some of these provisions come down, and the timing of that, the timing of the bill. It may be, hold returns situation and just time to be aware and be watching. So be cautious on those, for sure.
Amongst all the other things that we’re dealing with with a normal busy season, of course, I’ll say it again: Communicate with this bill happening and expected to go through. The audit risk is up. We gotta communicate on the voluntary disclosure, that March 22nd is gonna be here before we know it. It’s a busy time. and if we missed out an opportunity to help someone, to get out of this and that and they are in a bad situation later, that’s unfortunate. All of the effects of these false claims are unfortunate, but that’s something we can do now, have broad communication, put the voluntary disclosure program out in front of people, because there are some that are out there that their professionals don’t know about it, because it hasn’t popped up yet. It hasn’t been cashed yet. They haven’t seen it in the GL yet.
Yeah, I mean, honestly, it’s the same. There’s plenty of clients out there who have claims that are not legitimate. I mean, the IRS states that’s 95%—I don’t know that it’s that high, that seems really aggressive. I know we’ve done refilings with clients that are probably in there that are, like, second or third filings at times. But you just need to be talking to your clients about it. You don’t know whether or not they’ve done it, like Dan said. If they haven’t gotten the money, they may not mention something. You know, firms that we work with, they have clients who work with other people where we’re either doing, you know, second opinions on it. But if you’re not sure of the claim as the preparer, that’s something to be aware of too, right? Like, you really shouldn’t be signing off on it if they took a claim that’s just for lack of terms fraudulent, where it’s not eligible. Because there are penalties for you there. We didn’t touch on a lot of those things, but there are a lot of things at play, and there’s ample opportunity for you and your clients to make it right if you don’t have a proper claim.
So not to continue down that theme, but I think that’s the most important thing. Everybody’s so concerned about this next week. But that is not the big thing. The big thing is March 22nd. Because Dan said it, Nick said it, you are going to have clients that were tricked into claiming an ERC, and I’m saying it that way because everybody in the country was taking it, and so why not me? And look, I qualify because we had to wear masks, or something crazy like that. And so you’re gonna have the client, and then like Dan said, you’re not gonna see it right now. You have to be proactive because this benefit of only paying 80% of it back, and still getting the full tax deduction, and you’re not gonna get other than that, you’re not gonna have a penalty—this is unbelievably generous by the IRS.
So the March 22nd voluntary disclosure program, I think, is the most important thing that you need to get out of this discussion today. And I know that Dan said it as well: This is busy season, but you have to be proactive getting this in front of clients, even if you don’t know they took any ERC or not.
Okay. That’s my rant there at the end. I wanna thank you both for being part of this. Anytime I get to talk at ERC with you guys, it’s a great day. It was, I think, very educational, I appreciate the information, and I just want to let you all know: Tri-Merit Specialty Tax Firm, been around 17 years, got into ERC because there was a specialty, but there was a lot of other tax grants and incentives we deal with. We didn’t jump into the building the business because of ERC.
Same thing with Dan and Trout. Trout, full service, been around a long time. ERC just happened to be something Dan got excited about and did as well. But we are both—we service a lot of other things other than these two things. This isn’t our business, and so we were very thrilled to be able to help as many people as we did over the last few years—looks like that’s coming to an end, but it was honestly, if I look back at our very first ERC, I start to tear up, because it was helping an organization that helps children with autism. That’s what the program was out there for. Those types of things. Those that were closed due to a mandate.
And so, again, thank you both for being part of this. Thank you both for being so proactive in getting correct information out there for the last three plus years. And, it’s a little sad that this may be our last discussion on this, but honestly there’s probably gonna be more coming up.
We’ll see how the audit landscape plays out!
About the Guest
Dan Chodan is a partner at Trout CPA in Pennsylvania, having joined the firm in 2013. He currently serves on the firm’s Auto Dealerships and Manufacturing Practice Groups, but is likely better known for his high level of expertise on the Paycheck Protection Program and Employee Retention Credits that were introduced as part of Covid relief legislation in 2020 and 2021.
Dan handles all aspects of tax planning and preparation services, including monthly close consulting, year-end planning, and financial statement and tax return preparation.
He graduated magna cum laude from Maranatha Baptist University with a Bachelor of Science degree in Accounting. In his free time, Dan enjoys traveling and attending community events with his wife and two children.
Nick Pantaleo started his specialty tax services career in 2012 when he began working for Tri-Merit in a bookkeeping role. This grassroots experience prepared him for his future growth within the company, and Nick now oversees all financial and human resource operations for Tri-Merit. He has dual bachelor’s degrees in business & economics and exercise science from North Park University.
Nick earned his CPA certification in 2018. He and his wife Kendra are enjoying being new parents to their daughter Raegan. In their free time they love watching sports, going on bike rides and volunteering at a local dog shelter. Fun Fact: Nick was introduced to Tri-Merit co-founder, Randy Crabtree, when he was working at a local gym as the personal trainer to Randy’s son.
Meet the Host
Randy Crabtree, CPA
Randy Crabtree, co-founder and partner of Tri-Merit Specialty Tax Professionals, is a widely followed author, lecturer and podcast host for the accounting profession.
Since 2019, he has hosted the bi-weekly “The Unique CPA,” podcast, which ranks among the world’s 5% most popular programs (Source: Listen Score). You can find articles from Randy in Accounting Today’s Voices column, the AICPA Tax Adviser (Tax-saving opportunities for the housing and construction industries) and he is a regular presenter at conferences and virtual training events hosted by CPAmerica, Prime Global, Leading Edge Alliance (LEA), Allinial Global and several state CPA societies. Crabtree also provides continuing professional education to top 100 CPA firms across the country.
Schaumberg, Illinois-based Tri-Merit is a niche professional services firm that specializes in helping CPAs and their clients benefit from R&D tax credits, cost segregation, the energy efficient commercial buildings deduction (179D), the energy efficient home credit (45L) and the employee retention credit (ERC).
Prior to joining Tri-Merit, Crabtree was managing partner of a CPA firm in the greater Chicago area. He has more than 30 years of public accounting and tax consulting experience in a wide variety of industries, and has worked closely with top executives to help them optimize their tax planning strategies.