ERC (Employee Retention Credit) Tax Credit Information for Advisors and Business Owners

Hi, welcome to ValuationPodcast.com, a podcast and video series about all things related to business and valuation. My name is Melissa Gragg, and I'm a business valuation expert focused on strategic planning and exit planning in St. Louis, Missouri.

Today we are talking ERC Tax Credit information for advisors and business owners with Catherine Tindall. She's a CPA in California specializing in tax credits and is also a partner with Dominion Enterprise Services. She's combined proprietary technology with professional expertise with her CPA team, and is able to offer a fast turnaround time on credit claims while maintaining a high degree of precision. It's our mission to help business owners in key industries affected by COVID shutdowns such as restaurants, construction, and hospitality, to take advantage of the employee retention credit before it begins to expire in the spring of 2024.

1. What is the Employee Retention Credit or ERC Tax Credit?
2. What types of companies are eligible for Employee Retention Tax Credit?
3. What are the 3 signs of eligibility?
4. How Catherine Tindall, CPA, became an expert on the ERC Tax Credit
5. What are the pitfalls of calculating the ERC tax credit?
6. Do you think the IRS will audit companies who take the ERC credit?
7. In the future do you see Employee Retention Credit fraud increasing?
8. What are the benefits of working with ERC specialists?
9. How does your proprietary process protect the business owner from a future audit of the Employee Retention Credit?

Melissa Gragg CVA, MAFF, CDFA
Expert testimony for financial and valuation issues
Bridge Valuation Partners, LLC
melissa@bridgevaluation.com
http://www.BridgeValuation.com
http://www.ValuationPodcast.com
http://www.MediatorPodcast.com
https://www.valuationmediation.com
Cell: (314) 541-8163

Catherine Tindall, CPA
Dominion Enterprises
www.dominiones.com
CTindall@dominiones.com
603-693-7901

See transcript below:

Melissa (00:00):

Hi, welcome to valuation podcast.com, a podcast and video series about all things related to business and valuation. My name is Melissa Gragg, and I'm a business valuation expert focused on strategic planning and exit planning in St. Louis, Missouri. Today we are talking ERC. Tax credit information for advisors and business owners with Catherine Tindall. She's a CPA in California specializing in tax credits and is also a partner with Dominion Enterprise Services. She's combined proprietary technology with professional expertise with her CPA team, and is able to offer a fast turnaround time on credit claims while maintaining a high degree of precision. It's our mission to help business owners in key industries affected by covid shutdowns such as restaurants, construction, and hospitality, to take advantage of the employee retention credit before it begins to expire in the spring of 2024. Welcome, Catherine. How are you?

Catherine (00:58):

I'm doing well. How are you? Thanks for having me.

Melissa (01:01):

A lot of people over, you know, the past several years have been hearing about various tax credit, various retention credits or bonuses or things like that from the irs. I don't think a lot of people understand it in depth, but what our focus is today is to kind of briefly understand it, but then like, does it apply? And if it does apply or if you don't know if it applies, it's really something that we need to start dealing with sooner than later. And how do you reach out to a professional that can help you? But we're gonna start with the basics. Catherine, I know you speak a lot about this topic, but I think we gotta tee everybody off a little bit and say, what is this employee retention credit or this e r C tax credit? Cause people use a lot of different terms for it, and maybe it sounds like a lot of other tax credits, but it is very unique. Can you give us some background on it maybe?

Catherine (02:00):

Sure. So the employee retention tax credit it came out during the pandemic. A lot of people didn't take advantage of it or, or didn't know about it because when the program was originally released, it was back in March of 2020 the rules were pretty different than they are now. And so a lot of people didn't realize that, and a lot of, you know, professionals didn't realize that their clients were eligible for the program. It's basically like a third round of PPP is how I explain it to people. Basically it's compensation to business owners who kept employees during the pandemic and then, you know, suffered during the pandemic. You know, we can go into the specifics around, you know, who's eligible, that sort of thing. But the credit itself, it's up to $26,000 per employee. So that's the upper cap of what it is.

Catherine (02:45):

Just to, you know, full caveat there, most companies don't qualify for that full amount. It's very, very idiosyncratic for companies, but it is can be a very powerful tax credit with even, you know, companies with small headcounts qualifying for six figures depending on your situation during the pandemic. So it can be a really vital program and it's still available, you know, it's gonna start to phase out on us in April of 2024, so there's still time to take advantage of it, but it is you know, it is one of those one hit wonder programs from covid that's still around and, and many have had advertisements, you know, for it or maybe heard about it a little bit, but it, there's not a lot of information out there around it.

Melissa (03:27):

Well, and I think that, you know, from my experience kind of being in the accounting world and also knowing you know, a lot of accounting advisors or legal advisors, these tax credits and, you know, what has come out of the CARES Act are nuanced yes. And complicated. And quite frankly, just doing a cursory look or, you know, kind of knowing, oh, E c I know what it is, is not the route to take in some of these specifics, but even at the beginning, I think that business owners not, don't necessarily even know if they're going to, you know, be able to take this credit. So they're, so they kind of sit back and like I don't know, should I ask my accountant? Well, I ask my accountant and they knew a little bit about it, but they were a little weary because it might be complex and they don't know and they don't know enough. Are you finding that people kind of are at that space where there's not everybody knows what's going on and like, can, is it real easy for a company to say, oh, what, what type of companies are eligible for this? And am I checkbox, am I one of them?

Catherine (04:44):

Yeah, and I would say, you know, that's kind of the key issue that I see with this program is a lot of people fall through the cracks because it's a payroll tax credit, a lot of income tax professionals you know, the, the credit itself is very, it can be a very complex situation depending on what your company's going through. And for a lot of practitioners, they, they didn't wanna take this on as a practice offering. And so they left it kind of to the payroll providers to do. But, you know, for payroll providers, it's a big ask because it's a, it's a tax credit. There's no software, there's no special forms for us to use. So it really relies on the strength of the professional that's doing it. And so I think between those two things, a lot of business owners can be kinda left out just because their income tax professional doesn't see it as their responsibility to do the assessment.

Catherine (05:30):

So I think the main thing I usually tell business owners to, to know about if, to see if this is actually something that's been done for you, the first two pieces is, you know, does the, does your Tax pro have access to quarterly financial statements for you? Because that's one of the tests that we use is it's a revenue test and it's done on a quarterly basis. So do they have access to your quarterly financial statements back from 2019 through Q3 of 21? If they don't have access to those, then you haven't been assessed. The second piece is, has your tax professional had a conversation with you about, and this is very specific, how the government interacted with you during the pandemic, was your company subject to operational changes due to government mandate orders? Because that's the other pathway for the program. And so if they haven't had that conversation with that specific conversation with you very likely you have not been assessed for the program because those are the, the two main pathways for eligibility for companies.

Melissa (06:28):

And it's not necessarily like you shouldn't have an expectation that your accountant is trying to find all the credits possible, because what you said was kind of important, and it may have been lost on our audience, but tax professionals are focused on your income taxes. And because this is a payroll tax thing that would fall under, you know, we know a lot of large payroll companies Yeah. That's not what they do. They, you know, like they aren't in the business to go after these tax credits, so you almost have like a misalignment on Yeah. Who is doing it and maybe who understands it. Would that be

Catherine (07:07):

Correct? Yeah, no, that was, that's really what I've been experiencing in the field because I get a lot of work from people who have approached a payroll provider to do it. And then when the accountant got involved in the situation, just realized very quickly the payroll provider wasn't competent enough to do the work either. So you just get this kind of catch 22 where people get left out. And it's, you know, I think the big piece too is like, for a lot of tax practitioners, they see their first obligation is to keep people compliant. And with this, because it's a like a bonus program, it's kind of up, you know, they don't, a lot of practitioners I encounter don't see this as kind of their responsibility to put this in front of clients because it's, you know, it's not a compliance issue. It's, you know, just a benefit program.

Catherine (07:52):

Very similar to like how PPP went down. Some practitioners did all the ppp, everything for their clients. Other practitioners wouldn't touch it, you know, very similar, you know, it's, it's not, it wasn't really, it's not really clear from the program who's responsible for doing it. So, you know, I definitely put the onus on you as a business owner, or if you're an advisor, you know, to definitely check this out for the clients or, you know, check this out for your business and give it a second look. Because even if I had somebody earlier today that I was talking to that had a, you know, a hundred employees and their accountant had kind of blown them off about it and, you know, did a little bit, but didn't really dig into it. And I said, well, you know, even if you only qualify for two weeks with that headcount of employees, like this is a multi six figure issue. And to have somebody just pass you off with an email and not really dig into it, that's not really doing you a good service. So you wanna really do make sure you're giving it its due diligence, which is just a matter of talking to a couple providers and you know, getting a sense for, you know, who's, who's gonna be good to do this kind of work for you. And it's not too much of a time commitment really to do your due diligence on it.

Melissa (08:58):

Well, and I think that when we're looking at like, if I'm eligible and if we're like trying to look at some of the signs of whether I'm eligible, the other thing that I have to consider is that since it's a credit and like a one, not a one time, but like, since it's not gonna happen again in some capacity is it really easy to identify, well, this is what I'm giving up, this is what I'm not giving up. Or, you know, you talk a lot about an assessment and having, you know, somebody kind of at least preliminarily look and see, are you eligible? Are you, you know, is this a possibility? If it's a $26,000 credit up to, for each employee and you have a hundred employees, it would be realistically rational to at least see if you're eligible because there are other ramifications of it. But like, just preliminarily, like if you know, some of these three signs, it may be that you need to have an additional discussion, not necessarily with your accountant, but maybe with somebody who knows these credits. What were, what are some of the signs that I could at least be looking for to know whether I need to ask questions?

Catherine (10:11):

Yeah, so I'd say the first piece is, you know, if you've got over a head count of, I usually tell people, 10 employees, you should have an actual conversation with a professional that's gonna talk about your specific situation. Because I've had people who thought that they weren't eligible from just trying to self-assess and, you know, they missed some nuance or they missed, you know, some loophole or just misunderstood some of the tests. So that's what I usually tell people. If you've got more than 10 employees, you know, multiply that by $26,000, that's the upper cap of what you could be eligible for. It's worth having, you know, a couple phone calls and really digging into it more. And then for the actual program itself, the things that we look for, the first pieces we're looking for quarterly revenue declines. And so what I usually just tell people is that if you didn't have a quarter over quarter steady revenues or consistent growth revenues, you'll wanna have a tax professional look at it if you have any kind of dips in one quarter compared to the same.

Catherine (11:10):

So for this is for tax years, 20 in the first three quarters of 21, for most businesses, if you had any kind of revenue dip in 20 or 21 compared to the same quarter in 2019, you know, that could potentially be enough for you to qualify for the program. Now there's specific limits in everything for the program. So for tax year 20, it's 50% for tax year 21 it's 20%. But I just usually tell people, you know, most, most providers will do this assessment for you as a complimentary thing. I know we do. And so why try to DIY it? Just send your stuff over to somebody who will actually run the number and make sure they're getting you the right information. So that's one, you know, that's one major sign is the revenue, revenue I, you know, not consistent revenue growth or stable revenues over quarters.

Catherine (11:53):

We're looking for dips. And then the second, like I mentioned that you know, government interference in your operations. It sounds really vague when I say it like that because you know, that's how I lead that question. We actually have a lot of bright line tests from the irs, so we're able to, you know, it is a quantitative test. We have to be able to demonstrate certain things that you meet certain operational disruptions that are gonna qualify you for the credit. But we're looking for things like, you know, a restaurant was subject to indoor dining capacity restrictions due to a state order, or you run a chiropractor office with multiple locations and you weren't allowed to run you know, you weren't able to run your operation at, you know, full capacity because of social distancing requirements that were enforceable by state orders, things like that. And so it's, you know, you wanna talk to somebody who's gonna get through the nuance of it, but then also you, we, we look and find the actual government orders because that's what the IRS wants. But if you had anything like that going on where the government was, you know, you were directly enforced to do certain operational changes, it's worth having that conversation with a, you know, a professional about it to see if it rises to the level of eligibility. But that's what we look for.

Melissa (13:02):

And typically when we were looking at the P P P, we were also, especially the second round of funding, we were also looking at that kind of volatility. Yes. And you were talking, when we were talking about this earlier, you were even talking about like quarter over quarter, if somebody's not analyzing it in that capacity, that could also be another way to look at it differently. It's almost like you should assume that you could get the credit and just see if it's worth it for you to do what, what is required, right. Because it's not as simple, right? Yeah. In that capacity, like it's, it's not gonna be an automatic deduction this year, right? It's sort of in the future, or no.

Catherine (13:49):

Well, so, you know, I usually tell people, like, as you know, assume it's like if you've got like a, a lump on your neck, it's like assume that it's cancer until proven otherwise, you know, it's such a, it can potentially be such a big deal that you wanna assume that it's an opportunity for you until proven otherwise. That's not to say that every business qualifies. You know, I, that's definitely not the case. Many bus, you know, it's really idiosyncratic to what was going on to your co in your company during the pandemic. But yeah, it's, you know, if your company is eligible for it, you know, you're legally entitled to the money. It's not like PPP where it's a limited fund pool or it could run out, or Congress will change it, or it'll stop, you know, because it was written as a tax credit.

Catherine (14:33):

It's like when you, you know, if you filed an income tax return and didn't claim all your deductions, you're allowed to go back and amend that return for deductions. You le you know, you missed that you were legally entitled to, this program operates the same way. So unlike with PPP where it was basically once the money was out, if you were eligible but didn't do it too bad, this program's not like that. So you can still go back and get it. You know, that being said, IRS processing times are really slow right now, so it's not gonna come, we're recording this the end of 2022. So you're not gonna see any funds until 2023 at this point if you filed today. But you know, it, it is, you know, it's, once you've proven that you are eligible for it and you have the right documentation, it's kind of an in the bag situation, you know, you're legally entitled to it.

Melissa (15:17):

Yeah. And if you're going back and restating or amending prior tax returns, it also is kind of, you know, an invitation from the irs. So you wanna do it well, but I think it's an interesting I wanna talk to about some of the pitfalls of this calculation. But I think it's interesting we didn't, we didn't talk a lot about your background and I wanna tell people just a little bit, or have you maybe tell them a little bit about how you came about this, because it's not that you really set into like, I'm gonna be the expert on ERC tax credit. Yeah, yeah. Like tell them a little bit more because this is how our industry does change. But, you know, what were you doing and how did you kind of start really focusing on this?

Catherine (16:08):

So for myself, you know, my professional career is all tax. You know, that's where I've spent all my time. It's funny, my parents are both CPAs with the tax practice, so it's kind of a in the blood thing. But for myself and my partner, you know, we primarily worked before the pandemic with clients through strategic income tax planning, and then he has a deep background in r and d tax credits which is, you know, credit programs can be kind of similar to each other. So when this program was released during the pandemic, we decided early on, once we learned more about it, that, you know, if you're gonna do this kind of work, you really need to be an expert in it. And because we already had, you know, the experience doing the r and d tax credits and then also, you know, our team just kind of had a unique affinity for building tools and software and that sort of thing.

Catherine (16:59):

We saw the opportunity, we did the work for our own clients, and then I'm a member of a tax planning society. And so, you know, we offered it to other small practitioners because for a lot of them, you know, it just doesn't make sense to only do this credit for say, 10 20 employees and then have all the audit exposure and, you know, if they don't have a background in credit work, it's, you know, you're opening up potential liability issues there for, you know, you as a practitioner. And so we started doing these for other practitioners and then it just ballooned into a practice area, you know, as more practitioners found us as more business owners found us because it's, it really is a wonderful opportunity, but for a lot of, a lot of professionals, it just didn't make sense for them to take it on for, you know, a, a production standpoint.

Catherine (17:42):

And, you know, we, we did. And you know, I think for us too, the main, the main issue that we see with the program is really gonna be the IRS enforcement. And so that was something we, we put a lot of careful thought into when we were designing our, you know, our program and how we were gonna execute to make sure that we're ready for the IRS enforcement when it comes. Because that's the key problem with this program is that the irs, you know, just kind of rubber stamps processes, these claims, they take long enough to do it, but they rubber stamp these claims and then it's really, it's not gonna be, you know, another year, two years before enforcement really ticks up on this. And because it's such high dollar figures at stake and there's a lot of bad actors in this space, you know, there's just gonna be a massive IRS enforcement effort. You know, they have a, they have onboarded a special task force for this program. So it's, you know, that was the key issue we saw with the program and why we got into it and why practitioners work with us. Because, you know, it's the IRS audit. That's the thing. That's the critical issue.

Melissa (18:41):

Yeah. And I mean, as a business owner, if I'm looking at, you know, my accountant, maybe I've been within my accountant for a long time, but they're nervous about filing this or amending it. Yeah. Right. Because they don't wanna take on that. That is what, you know, you and your firm and other firms that are very much specialized in this are prepared to take on some of that risk. And that's some of the piece of it that I think makes me even feel more comfortable about the fact that you are standing behind your numbers in that you're willing to fight for it. And that could be a unique difference between practitioners that I would encourage people to ask about, because if they don't, you know, like then it's maybe they're just their own personal accountant doing it, and the personal accountant would be like, you know, I don't think it's worth, I don't think your credit is worth the effort. And really it's the risk of the accountant, not the risk of the business owner that's kind of pushing them away from it, right? Mm-Hmm.

Catherine (19:46):

<Affirmative>. Yeah. Cuz if they don't have a background in doing iris representation work, you know, that's, that's gonna work against them. Because you know, like I said, there's a gap here. And so if you don't have your paperwork in order now while everything's available in two years from now, when they come back, you know, are you gonna have all the substantiating documentation you need? You know, are you really confident in what you did? Because this is gonna get, you know, this program's gonna get heavily second checked by the irs. And for a lot of practitioners, they don't wanna take the risk. And I, you know, I'd say for most business owners, don't let that ward you off the program, right? Because if you're entitled to the money and it's just, you know, for you as a business owner, the key decision is just working with a good practitioner for it who's ready for the audit piece.

Catherine (20:30):

And you know, for us, I always tell people, you know, we include that as part of the initial engagement just because I create the audit file when we do the claims. So, you know, when it comes time to actually having to deal with the audit, it's just a matter of sending over some paperwork that we've already put together and, you know, maybe doing a phone call call and then or a letter and we're done. You know? So I'm not concerned about it, but I know for a lot of practitioners, that's the main fear here for the business owners. That's the main fear and it's justified, you know, that's a justified thing to be afraid of.

Melissa (20:59):

Absolutely. And I think that that's one of the keys is building that audit file and also knowing it back and forth. But that means that you guys have seen a velocity, you guys have seen so many different situations that you can see what some of the, you know incorrect calculations are. But maybe you can just tell us like some of the pitfalls of the calculation of the ERC tax credit and, you know, even maybe where people are just, you know, maybe it's more in depth than certain areas, but people are looking in the wrong areas. But like what are people really stumbling on practitioners in this space maybe?

Catherine (21:43):

Yeah, so I'd say the first one that I see practitioners stumble on is a lot of them are unaware. They're aware of the revenue rules. They might be unaware of the alternative quarter election, which allows us to use one quarter's, you know, revenue eligibility to trigger the next quarter being eligible. So the common one I see people miss on that is not realizing that if you have an in Q4 of 2020 showing a 20% decline in gross receipts compared to that same court Q4 2019, that actually triggers Q1 of 21 to be eligible for the program. So that's a common one I see people miss. Another one I see people miss is thinking that if they got P P P, they're not eligible for erc. That's not true. It was originally that's how the program was written, but that was subsequently changed.

Catherine (22:29):

And a lot of practitioners miss that. I think almost every case that I do has both PPP and erc, they do interact with each other. The PPP can wipe out, you know, a portion of the erc, but it's still, you know, like I said, almost every case I do has both. So that's a common pitfall that people miss. Another really common pitfall that I see people miss is not understanding what's gonna be a qualifying government order. And so the pieces that we look for there is that the government order itself is, you know, coming from a state level, coming from some kind of governmental entity, that it's enforceable on the client and that it's forcing a more than nominal change in the business. So we're looking at a more than 10% effect on their business. And that the, you know, the portion of the business that is being affected, it's being affected in a more than 10% way.

Catherine (23:21):

Those are the two bright lines. But a lot of practitioners don't, they're intimidated by those rules cuz there's some complexity there and some legal interpretation. Like we have a staff attorney, but that's what he does is, you know, make sure that the government orders are sufficient for what the IRS rules are. A lot of practitioners don't feel comfortable making that judgment call. And so they'll only look at the revenue quarters and not, not look at the government orders. So that's another common pitfall we see for the program. And then just other calculation pitfalls, things like people not understanding how to do the PPP allocations with regular ERC wages. Not understanding some, some nuances around disqualified wages. So if you have owners in the business and family members in the business, do they need to be disqualified? It depends is the answer, you know, things like that.

Catherine (24:07):

There's a lot of little tricky bits that can sway the credit a lot. And a lot of practitioners, unless you've, you know, read through all the IRS FAQs and the legislation we have, you know, you might miss something that's important. I guess one other piece that's a common pitfall that you know, I should make mention of is that this program has what's called aggregation rules. And so if you have multiple businesses that have a shared ownership structure, we actually have to aggregate them into one claim. And so very often practitioners will miss that what they're dealing with is an aggregated claim. And that can be beneficial or non-beneficial. It just depends on the situation. But I've had companies not think that they were eligible and then didn't realize that they had a sister company that was eligible for the program that then triggers them for eligibility. So that's a common thing that people can miss as well if they're not familiar with the aggregation rules. So those, those are the most common pitfalls that we see.

Melissa (24:57):

And, and what if, what if we get, you know, I have a lot of clients that thought about taking the PPP and didn't because they kind of knew that they were still profitable. I have, I do have one client that actually gave the PPP money back because they had certain fiduciary responsibilities and they didn't want to claim that they had taken PPP when they didn't need, they took it, but they didn't need it. So they gave it back and it was a lot of money to give back. So I'm just wondering, is there a, you know, like it, to me it seems natural to say, okay, I got ppp, let's look at these other credits. Yeah. But isn't there an opportunity, like if you didn't maybe qualify for the PPP or you lost out, but you did keep your employees and you did pay that money and you did all of that, isn't that really where you should be considering a potential credit as well? Mm-Hmm. <Affirmative> like regardless of the PPP situation? Yeah,

Catherine (25:53):

Yeah, yeah. Cuz you know, the main issue I usually tell people if you qualified for both rounds of ppp, it's likely you'll qualify for erc. Cuz the programs are somewhat similar. And if you didn't get P PPP for whatever reason, you know, program's close, you can't go back at this point and get it. But, you know, most people where they got P ppp, we can't double dip on the wages that are used. And so if you didn't get ppp, you know that now you don't have that being pulled out of your ERC so you can qualify for potentially more. But so that's, you know, that is a nice feature for people who didn't get the, the PPP money is that, you know, it will potentially bump up your ERC just, it depends on the timing, et cetera. But you know, it is still a program.

Catherine (26:39):

And I think for a lot of people who, you know, had concerns about, well, you know, know we're doing well, we don't need a handout, you know, we don't wanna do ppp. I'd say a distinction to consider for this program is it's, it's really a tax credit. So it's not like a handout from the, you know, the handout from the government in the same way it's just baked into the tax loss. So like how you're able to deduct expenses and, you know, be eligible for, you know, preferential treatment with rates or whatever it is. You know, this credit program is the same way. So you do have like a legal entitlement to the money. It's not really, you know, you don't have to take advantage of the program. But you know, it's not the same thing as PPP where it was at the government's discretion to hand it out.

Catherine (27:19):

It was at the government's discretion to forgive it. You know, you really do have a legal entitlement to this money. Just like, you know, you have a legal obligation to pay your taxes. You know, it's, it's on that kind of same level. So I think for a lot of people who didn't do PPP for, you know, reasons beyond, you know, qualification, you know, they didn't feel comfortable with doing it, you know, a government aid program, this, you know, this program's a little different because it is a credit. You know, it's, it's designed for you to take advantage of it.

Melissa (27:49):

Mm-Hmm. <affirmative>. Well, and I think that one of the other things that I think I would be a little concerned about if I'm going down this path is the IRS and the audit. And so do you think that the IRS is gonna audit companies who take this ERC credit or at a certain level, you know, like, do you, can you already kind of envision, you know, what's they're gonna start looking at? Because I think your audit, creating that audit file at the beginning is very important, just so that you know how you proved it out. Like we do that a lot in the valuation. Like, how are you gonna prove this out when you get to court? Yep. And so, but do you think that the IRS is going to target like thresholds or types of things? What do you think's gonna happen?

Catherine (28:39):

Yeah, what I think's gonna happen you know, I think that there's gonna, we don't have these formal guidelines yet from them. But what I think will happen is that claims that are in a certain size will be selected for audit. I think claims that don't make sense on the face of them will be selected for audit. So for instance, if you've got, you know, a construction company in Florida that had increasing revenues for tax year 20 and 21, claiming the credit for all quarters, you know, that doesn't make sense on the face of it. Mm-Hmm. <Affirmative>. So, you know, they're gonna look for things that don't make sense on the face of it. Now if you're a restaurant in New York City and you're claiming for all, all quarters, you know, that's a lot more likely. So, you know, I would imagine that they're gonna take an audit program like that where they're gonna look at cases that just, you know, kind of statistically don't make sense and go after those.

Catherine (29:30):

And then I think the other piece that they're gonna do is they're going to select providers for audit. So where we're seeing, they've already given us a special pathway for whistleblower claims against bad providers. I think there's gonna be a massive enforcement effort on a provider level where they're gonna just audit the whole provider and then probably DOJ activity you know, for some of the negligence that's going on out there in the field. So I think that's how they're gonna approach it. But we won't know until we get there. And you know, I think for a lot of the smaller claims, it's probably less likely that they're gonna be audited. But we just really can't speak to that. So that's why I, I just treat every case that comes across my desk as if the, you know, the agent's gonna be contacting me, you know, the minute it goes in the mail.

Catherine (30:14):

Just because you have to, you know, assume that that's gonna be the case. And then, you know, hopefully hopefully it won't be every single one gets audited, but it, it is gonna be a highly enforced program just because of the dollar figures involved. Because of the bad actor, the amount of, you know, bad claims that are being filed. The IRS has issued warnings to employers to watch out for bad providers. So they have their eye on it and it's coming, you know, it's just a matter of time because, you know, they have a, they have a couple of years after the filings are done for a statute of limitations to come back. So, you know, even if you file, get your checks, you know, everything seems hunky dory for a year. They can show up well after the fact, you know, after the money's been spent even you know, and, and initiate an audit. So that's, you know, that's what we're anticipating.

Melissa (31:04):

Well, and I think the nuances of it, because there are some of these like kind of uniquenesses that, that create the eligibility and things like that, you're gonna have practitioners that are just like, oh, 10 times, 26,000, you know, and you're gonna have people that are kind of just doing this on a very easy, you know, we, I always laugh when people say, oh, have you ever had an estate valuation go through an IRS audit? I was like, no. And they're like, well, how? And I'm like, because I base the valuation on reasonable assumptions. And so what I'm hearing you say is like, I'm basing the tax credit on our research, on our understanding on your company, and here's the backup for that decision of what to put on the tax return. And if the the IRS disagrees with us, they're gonna come back, but we're gonna have our reasoning. Yeah. And it's probably going to ha you know, like it's not gonna be as aggressive maybe as somebody who's just taking 26,000 multiply by 10 employees and going for the credit. Right?

Catherine (32:12):

Yeah. Yeah. Cause that's what I see a lot of people do is, or you know, I see I've, I'm dealing with trying to clean up messes from some of these situations where people will just say, oh, you know, you business owner, did you have, you know, did you have disruptions during the pandemic? And the business owner says, oh yeah, it was the whole pandemic. And they say, okay, great. That's, then you qualify for the whole thing, you know, and they were just basing it on a client attestation instead of act the actual legwork and, you know, following the rules from the IRS for substantiating documentation. And the client doesn't realize that that's what's happened. A lot of times the outside tax practitioner doesn't realize that's happened. You know, I was on a phone call earlier today with another practitioner who his client was working with a, you know, an outside law firm and he was concerned because it was gonna be a very large case.

Catherine (32:57):

And I said, well, did they give you copies of the government orders? Did you ask for them? And he was like, no, they didn't. I was like, well, ask for it. See what they've got. Because if they've got that and they're doing this and that and the other, you know, it's probably fine. But people just don't realize, you know, what goes into the background of these? It's not as simple as saying, okay, you know, I paid, you know, Sally, you know, Susie and Sally and Jimmy X amount wages, I'm gonna time that by 70% and there's my credit. You know, that's, it's not as simple as that. And a lot of providers don't realize all of these rules and you know, the nuances and they don't realize that there's amended income tax returns required and amended payroll tax returns required. They just don't realize all that goes into it. The business center doesn't either. So

Melissa (33:40):

It's, what did you just ask if we had the legal something, something something?

Catherine (33:44):

Oh, the substantiating documentation.

Melissa (33:47):

<Laugh>. Well, no, but when you said specifically, did they have the legal, like if you ask a practitioner some of these things and they look at you like deers in the head like, like I did, they don't know. Yeah, that's a problem.

Catherine (34:00):

Yeah. It's like, what's the copy of the government order? Like it's gonna be specifically governor so and so's order, you know, 16 dated May 15th, 2020. Like, do you have, is that what you're using? Like what are you using for government order? Cause that's what it hinges on for a lot of, you know, eligibility for people's government orders. And so if you don't have the physical order and then also showing like, okay, it's paragraph this subsection this where it references this business type of, you know, non-essential retail capacity restriction, 40%. Like if you don't have that, you know, it just, the work hasn't been done. And a lot of people don't realize that.

Melissa (34:37):

Well, and it's interesting because those are the things we're usually looking for in a business interruption claim. Mm-Hmm. <Affirmative>. And so when the pandemic first started, the business interruption claims were contingent upon this, you know, an executive order or something closing you down. Yep. And so you really had to know like, what, what was it called? Cuz around the country <affirmative>, they were called different,

Catherine (34:59):

They things all different. Yep.

Melissa (35:00):

They were certain, you know, different restrictions and, and so I, I completely understand now another thing like this is a little bit different, but in the same, in the same space, what do you see in the future? You know, in the future we're gonna see employee retention, credit fraud increasing. But like what does that really look like? Because I'm trying to, you know, in some capacity that's not really a business owner coming to their accountant and saying, Hey, I got four employees, let's see what we got. That's a little bit, you know, like when I, I think of fraud, I think of more like I'm trying to get a credit for 50 employees and I have three, right? Yeah. But are there other way, you know, like are you already seeing some of this fraud come out and is that where it's going, just sort of made up employees or is it even more in depth than what I can envision?

Catherine (36:00):

Yeah, I think we've got, from what I see in the field, which is, you know, a limited scope and I talk to other practitioners about this a lot you know, it's a combination of, I'm sure there's just rampant fraud going on in the program just from me dealing with it. But more often it's negligence is really what it is. It's people who are not tax professionals trying to do this work who are underqualified to do the work they don't understand the nuance of the tax code. Because the other thing too is it's one thing to maybe understand some, you know, some parts of the program. It's another thing to understand how it interacts with the rest of the income tax code. Because it's, that's where it lives. And so, you know, certain ways we have to interpret things or treat things come from completely other parts of the code.

Catherine (36:45):

So it's, unless you're an actual tax professional, you'd miss out on a lot of those things. So more often it's negligence is what it really is and people trying to do this quickly or you know, just trying to do this as a profit, you know, trying to generate these big credits and get contingent fees on them and that sort of thing rather than the focus being on, you know, getting the, the work done correctly. You know, that's, that's more, that's more what I see and you know, it's, this is gonna be one of those situations where, you know, my, my personal opinion is like, I think a lot of people are gonna end up in jail. Like I think it's gonna be a massive Department of justice effort. Because I deal with, I some of the claims that I see, you know, people come back to us, you know, I look at who the provider was and how much they've said that they've filed for, and just how off the claim that I'm dealing with is and the extrapolating those numbers and it's, you're dealing with, you know, hundreds of millions of, if not billions of dollars in, you know, overstated negligently done claims.

Catherine (37:47):

Like it's, that's the level that we're at with this program. So it's gonna be a multi, it's gonna be many years of unwinding from the irs you know, to deal with it and to deal with the, you know, the backlash from it. But that's, that's what I see on the horizon.

Melissa (38:03):

And that's, I mean that's kind of a really important issue though because if, for example, if you don't vet your person, right, and it's just your regular guy or somebody down the street, whatever, that's, that's put a shingle up because realistically to, to put a shingle up and do this for like a year or two, not <laugh>, not maybe worth it other than you guys to be efficient, but the reality is if they do one kind of bad thing with another client, it could come back that the IRS is looking at all of the ones that they did and yours is gonna be one of them. And it could just be in an unfortunate event. But you have to be mindful of that. And I think in general, we'll talk next about like specifically cuz I do wanna talk specifically about your practice because that's why I was so interested in, in talking more about it. But like in general, if people are around the country all over the place, they can't necessarily, everybody can't go to you. You know, what are some of the benefits with at least seeking out somebody who has specific experience in this area that we haven't necessarily talked about but that you could maybe provide, because I don't think this is just going to your accountant and saying, Hey, do I get the credit? Yeah. You know, it's a little bit more, but maybe you can talk a little bit to that.

Catherine (39:36):

Yeah. Well I'd say, you know, about our practice in general I work with practitioners and clients all over the country cuz it's a federal tax credit. And so we're able to work with anybody that qualifies for it. Whether, you know, you're in California where I am or it's most half the year I'm in New Hampshire. You know, we work with people all over the country on this program and we work with, you know, our main work that we do is we're kind of the ERC department for other tax practitioners. So, you know, most of our work comes from other tax practitioners who, you know, kind of looked under the hood of this thing and decided they didn't want to touch it. So that's, you know, that's what we do. And we work really nicely with outside tax pros cuz we handle basically the whole claims process other than, you know, the amended income tax returns that are required.

Catherine (40:25):

So this claim itself, just so you know, is, is filed on amended payroll tax returns, but it also requires amended income tax returns to get the claim actually, you know, completed and done correctly because it, it, the credit interacts with your income tax situations from prior years. You know, if you're claiming in 20 and 21, you'd have to go back and amend those returns. So, you know, we have to work with the outside tax pro to get that work done. But that's, that's how our practice works with people and you know, we track with the IRS and then in the event of any kind of audit or inspection, you know, we're there to handle it because it's, you know, that's, it's what goes into these jobs, you know, that's what we're expecting. The job's not done until it's gotten through audit because you know, that's gonna be a high percentage of the cases.

Melissa (41:07):

Now could I, if I have my own accountant or accounting firm or whatever, maybe an internal accountant out, you know, external count, all of 'em would, would it still be beneficial for me to contact you about this specific credit and still work with my other accountants?

Catherine (41:29):

Oh yeah. Cuz it's usually what it is is, you know, for a lot of people, people, they'll start off by talking to their income tax professionals, see if the, you know, if you're dealing with a midsize firm or a large firm, very often they have a special department that does just these. So if you're in a situation like that, great, you know, talk to them. If you want a second opinion, feel welcome to talk to us too. I usually tell people get two opinions, you know? Yeah. It doesn't cost you what a phone call. So you know, you can start there, but, you know, I wouldn't I wouldn't sever an income tax relationship because they're not, you know, they're not handling this specific idiosyncratic credit. So usually you know, for a, usually when I work, when I, when somebody finds me and not their CPA has found me once I talk to the CPA and they're like, oh, you do this, okay, great, I'm gonna send you, you know, the rest of my people cuz it's, you know, I don't wanna handle this. You know, that's a lot of, that's a lot of what we get from outside practitioners, you know, when, when they find us through a client that we've done work for. So.

Melissa (42:30):

Oh yeah. I mean I, I think it, I think people really need to understand that this is, you keep your relationship with your accountants mm-hmm. <Affirmative>, this is like a special situation. Like just figure out if it's money in your pocket and if it's not, keep on going. Yeah. Right. Mm-hmm. <Affirmative>, I mean, in some capacity. Now for you guys specifically though, you kind of have a proprietary process that, you know, in building your file for the audit and such for the employee retention credit, but also really this was a product of, at the very beginning you had a significant amount of clients that were seeking this and it was very complex and you kind of sought to, okay, if we're gonna do this <laugh> yeah we might as well put the time effort to make it be an efficient process. Because you didn't have to like, you could've just been like, okay, well just do it for this period of time. So you really endeavored to kind of change how this was being processed and become a specialist in this space. Yeah. But, but what is the uniqueness of you guys just you've been doing so many that you can see it quickly or you know, what else would be a benefit for them to use you specifically? Yeah,

Catherine (43:53):

I'd say with us, you know, and part of the reason that we did this is just seeing kind of how the IRS is, you know, how we anticipate they're gonna deal with the program is they're gonna be auditing us as practitioners. And so by being able to have a lot of the main concern for me was quality control and making sure that every single return that goes out, you know, meets quality control standards, everything's getting reviewed by a cpa everything is being triaged by, you know, either a CPA or the attorney for the government orders that we're maintaining all that documentation and, and just we, you know, we built, I decided, you know, if we're gonna do this, we need to really do it right. And to, to do that, you just need a lot of those kinds of safeguards in place through a process standpoint.

Catherine (44:37):

And that's, and so that's what we did. We developed a lot of our own tools and technology and checklists and quality control measures and those sorts of things to make it, you know, an efficient process for the client, an efficient process for us. But something where the quality controls really high because that's, you know, where I see that the, the issues gonna come up when, you know, when the audits come, is being able to demonstrate like on every single case it doesn't go out unless it's got, you know, this, this, and this and we tie out to that and we, you know, we double check this and, you know, that's, that's gonna, what they're gonna be looking for. So that's, that's what we built. And then on the client side of it too, I was just really sensitive to, okay, business owners don't wanna be spending 6, 7, 8 hours trying to deal with this thing.

Catherine (45:18):

So if we can make the process simple for them where it's just one checklist, seven documents you know, introductions to outside providers for the things that we need. So like for, you know, if they pay health benefits, health benefits count towards the credit you know, their payroll provider, we work with them directly to source the reports that we need. Things like that. How do we make it easier on the clients? And that was, you know, a big emphasis as well. So, you know, I think most business owners who work with us, it maybe takes them an hour or two to get us all the documents as long as they're, you know, in fairly good order. And so that takes a lot of the pain, you know, the pain points out of it for the client as well.

Melissa (45:54):

Mm-Hmm. <affirmative>, no, absolutely. And I, and I think that, you know, in this space, do you think that having even that legal side of it is also helpful because part of this is, you know, those government shutdowns were more of municipality mandates mm-hmm. <Affirmative> as opposed to like economic mandates or something like that. So it is kind of bringing all of these pieces together that looks like it's an accounting issue, but it's got a lot of legs to it, right?

Catherine (46:25):

Oh yeah, no, and for, you know, I think for the IRS enforcement issue, for companies that are using non-revenue qualifying factors, so like the government orders or supply chain disruptions, which I, I didn't even mention that one because I just as a warning on that one, if you have somebody telling you you qualify under a supply chain disruption, it's, it's probably not true. Cuz it's really difficult to qualify under that part of the program. But you know, we have an attorney on staff that, that's what he does is writing technical memos and doing the analysis on what the orders were and going back to the clients, et cetera. Because it is, you do need legal interpretation you know, for those specifically. And you know, a lot of accountants just do not feel comfortable doing that and rightfully so. Like that's kind of out of the wheelhouse for a lot of, you know, a lot of income tax professionals to have to make, you know, do a legal analysis on a, on a government order. So that's something that we do, you know, we do as well for any case that's gonna have that.

Melissa (47:17):

Well, and I think that that's what we're starting to see more often, that you do need a team of different background individuals that can look at the same issue from a lot of, of different perspectives. Mm-Hmm. <Affirmative>. So I think that that is super helpful. So we've put some information about how to contact you. Do you have that checklist or other information resources on your website that people can get? Because I will say I am not the ERC specialist, so if you have a question, you're gonna need to call Catherine, not me, <laugh>. But I think that you know, if you have other resources on your website and things like that, they can kind of get started. Understand. I love that. It's a simple process. Is there anything else that we should know about this or that you think is not being discussed that you wish maybe people would talk about?

Catherine (48:17):

No, I think, I think we hit everything. You know, I'd say in terms of resources, if I were you as a business owner, if this is your, like your kind of wake up call to, okay, you know, I've been getting, you know, 30 robo calls and six emails a day from, you know, companies that do not seem us based. I'm gonna, I'm gonna actually look into this thing. You know, the place I would start if I were you, you can visit our website and the, there's a four business owners page that's got a PDF on it. That's top five ERC mistakes. And it goes through like my top five, you know, red flags that I see from businesses. And then if you'd like to have, you know, your company assessed, visit the website, there's a CFI qualified tool that asks for a few questions and then we'll get in touch with you.

Catherine (48:58):

And then it'll be one of the CPAs that talks to you you know, to diagnose your situation and see if it's a program you can do. What we do for clients is we, you know, we do that initial eligibility calculation is a complimentary thing so that, you know, in the event you're not eligible for it, you know, you've just lost your time. That's it. Mm-Hmm. <Affirmative>. So that would be the process I would recommend, you know, definitely, you know, talk to your CPA about it, see if they've really done the digging that's required. If they haven't, you know, you can talk to our firm you know, if you're going to seek out other providers I have some advice in the, the, the top five ERC mistakes PDF for how to source a good provider, things you should watch out for red flags.

Catherine (49:39):

So you can review that as well if you wanna talk to a couple different people. But you know, I know I talk shop with a lot of other practitioners who do this work too, and we're all kind of in the same ballpark as far as, you know, approach. And you know, you'll kind of feel if things are off, you know, if you feel like you're being sold you know, and you're not talking to a tax professional, you're talking to a salesperson, that's a big red flag. You know, you'll kind of know because it is, it's a technical tax credit, so you should feel like you're dealing with a nerd <laugh> kind of thing.

Melissa (50:10):

Well, I mean, what do you have to lose? If, if I can call you up, you're gonna take a look. You're gonna get some documents, you're gonna tell me if I can get it and then help. I mean, why would I not call you?

Catherine (50:21):

Yeah, we've tried to make it, we've tried to make it a painless thing. But I think a, a lot of people are just spooked by the audit, which is fair. You know, but it's like, you know, really my, the cpa like sending in some documents and fielding a phone call, I'm gonna walk away from potentially a hundred thousand dollars, like for most business owners, it's like, all right, I'll take that risk. Yeah. You know, especially when, like, for us as a provider, like that's just in our baked into our engagement letter that we handled the audit. So it's Right. You know, it's really no risk on that. But

Melissa (50:53):

No, I think this was really helpful. And it's also, you're also a research for other accountants, other professionals, other attorneys going through this that may not know everything about it from the money side, but you can kind of come in. So please reach out to Catherine if you have questions. And I think she has been very pleasant to even talk about this. She is, she, she can really nerd out to this information, but like, I do the same for valuation. So like, it's just, it's just numbers. We love 'em. What can we do? Mm-Hmm. <affirmative>. Well, if you have some more information in the future, there's a new tax credit I'm gonna kit you back on the podcast, but I really appreciate it. Catherine, thanks so much

Catherine (51:39):

Today. Yeah. Thank you so much for having me. I always love always love getting into the weeds on this one.

Melissa (51:44):

Yeah. All right.