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Restaurateurs Should Beware of Improper ERC Tax Claims

CPA Michael J. Rasmussen explains what you need to know if you’re applying for the Employee Retention Tax Credit.

  • The IRS is warning employers about improper Employee Retention Credit (ERC or ERTC) claims, and restaurateurs need to pay attention!
  • The agency’s ERC program itself is legitimate, but you should research it and work with your own CPA or tax advisor to determine if you qualify.

Related: Pizza Power Report 2023: Are independents making a comeback?

By Michael J. Rasmussen, HITECHCPA.com

As a restaurateur, you might have been recently approached by a third-party company that says it can help you get Employee Retention Credit (ERC) funds from the IRS. The ERC is a refundable tax credit for businesses that continued paying employees while they were shut down during the pandemic or that suffered significant business losses in that period. There are certain conditions that you must meet:

  • You were forced by the state or local government to suspend or partially suspend operations due to COVID-19 during the first three quarters of 2021.
  • Your business experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021.
  • Your business qualified as a recovery startup business in the third or fourth quarters of 2021.

In recent months, you might have received a text or email that reads something like this: “Hello, the employee retention credit (ERTC) is a credit that grants companies up to $26,000 per employee. Your business may be eligible if you have received a Paycheck Protection Program loan or had employees on payroll during 2020 and 2021. To apply before the application deadline of December 31, respond YES. Reply STOP to opt out.”

Your first reaction will probably be, how did I get on this mailing/text list? My advice to you: Immediately opt out! The IRS is specifically warning against the use of third-party companies promoting this service. Here are two IRS articles you can read to learn more:

Employers: Beware of Third-Parties Promoting Improper Employee Retention Credit Claims

Employers Warned to Beware of Third Parties Promoting Improper Employee Retention Credit Claims

Why should you be concerned? If your ERC claim was prepared by a company not normally in the business of payroll tax compliance, the IRS will notice. And it’s possible that you will receive a tax inquiry from the IRS. In other words, if the IRS is taking the time to warn taxpayers of improper ERC claims, you need to pay attention!

What should you do instead? If you have a CPA or trusted advisor who is responsible for filing your annual business tax returns, send that person any email or text you receive from a third-party company along with this article and kindly ask if or how this impacts your business. The ERC is a legitimate program if you qualify. As a business owner, you can discern and make this initial decision without incurring any professional fees by reading this five-minute article on the IRS website:

Employee Retention Tax Credit 2020 vs. 2021 Comparison Chart

So what are the actual deadlines for filing an ERC claim? It’s not December 31, 2022. In fact, the IRS has two deadlines. For all quarters in 2020, the deadline to apply for the ERC is April 15, 2024, and for all quarters in 2021, the deadline is April 15, 2025.

Example: For the second quarter of 2020, Form 941, an employer’s quarterly federal tax return form, was originally due on July 31, 2020; for the third quarter, it was due on October 31, 2020; and for the fourth quarter, it was due on January 31, 2021. All of those returns are considered filed on April 15, 2021, which sets the three-year statute of limitations for amending any of those returns as April 15, 2024.

So here’s my assignment to you: Take this article and use the above links to research whether your business qualifies for an ERC refund. This is a very complex area with many moving parts, so reach your conclusion and then be kind to your advisor as you discuss with that person if an amended tax return can be filed.

Get informed! You don’t want to wait until it’s too late to take advantage of the ERC opportunity and other programs, monies, grants, credits or strategies, but you don’t want to go about it the wrong way and get flagged by the IRS either!

Michael J. Rasmussen is a certified public accountant and PMQ’s former “Accounting For Your Money” columnist. For additional insights into restaurant-specific tax strategies, accounting and technology programs, visit HITECHCPA.com.