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ERC Expert vs. CPA: Which Professional is a Better Fit for ERC Filings?

July 18, 2023  |  9 min read

With all the misconceptions surrounding the Employee Retention Credit (ERC), employers are understandably overwhelmed by the idea of applying for the federal tax credit. To avoid potential audits and other financial or legal ramifications, businesses need to consult experts when they begin the filing process. So, who should you trust with your organization’s application?

Common misconceptions associated with eligibility are why many businesses don’t claim the ERC credits, or the full amount, they should receive. Payroll providers or in-house CPAs may believe these misconceptions due to not having full knowledge about the intricacies of the program. To ensure accuracy and adherence to the complex ERC tax code, employers should work with firms run by licensed professionals who specialize in ERC tax credits. 

The right partner for your organization will offer highly specialized, experienced tax and legal guidance. There are many options to choose from when looking for ERC assistance—but not all ERC “experts” are cut from the same cloth. This article discusses how to look for the best ERC firms that offer tax and legal expertise, plus how to avoid predatory ERC “mills.”

Required Legal Criteria

More than half of the Employee Retention Credit involves complex legal criteria. That being said, many CPAs are giving incomplete advice related to potential paths to eligibility, one of which involves a legal analysis. An ERC advisory firm should be able to offer support from both a tax and legal perspective, backed by a team of qualified, knowledgeable professionals. 

Expert ERC firms are led by CPAs and tax attorneys with significant experience applying the financial and legal tests for ERC eligibility. They also provide clients with a detailed, CPA-certified, proactive report detailing eligibility and wages claimed in case of an IRS audit. Further, they regularly advise potential clients to avoid claiming the credit when they will not likely meet the eligibility requirements in their entirety or for certain portions of the ERC program.

Benefits of Filing with an Employee Retention Credit Specialist

Filing with an ERC specialist can offer employers the assurance of peace of mind. The initial work of choosing an expert for your organization can seem intimidating as there are a plethora of tax, accounting, legal, payroll, and other specialty providers out there that want your business. In situations of uncertainty, especially with potential tax and legal ramifications, you should use a provider that employs a variety of tax and legal specialists.

The IRS has a longstanding “reasonable cause” standard that can protect taxpayers from penalties if the taxpayer reasonably relies in good faith on the advice or opinion of a professional advisor. However, to meet this standard, a taxpayer must generally use an advisor they believe possesses appropriate knowledge in the pertinent area of tax law at issue. So, when taxpayers choose advisors that lack credentials, including the lack of adequate prior experience advising clients on federal tax matters, it can increase the risk for taxpayers.

Additionally, working with the wrong ERC advisor—including dubious ERC “mills” like those discussed below—can lead to various accounting and legal issues. Below are a few examples of potential filing errors that stem from choosing ERC advisors inexperienced in both the accounting and legal aspects of the ERC or incentivized to overinflate a client’s ERC claim:

  • Miscalculating the FTE count
  • Misapplication of the Aggregation Rules or Related Parties Rule
  • Misuse of the Partial Suspension Test
  • Abuse of the OSHA General Duty Clause
  • Abuse of the Supply Chain Argument
  • Misapplication of the PPP/ERC Interplay

Opting to protect your organization by carefully choosing an Employee Retention Credit expert will pay off—allowing you to feel confident in your ERC claim. 

Spotting ERC Mills

The IRS has warned employers to be wary of third parties who advise them to claim the ERC even though they may not qualify. These nefarious third parties often charge large upfront fees or a fee that depends on the amount of the refund, and they may not properly inform taxpayers that wage deductions claimed on the business’s federal income tax return must be reduced by the amount of the credit.

The term “ERC mill” is now commonly used to describe these unethical ERC service providers that the IRS has issued warnings about. These third-party “firms” are usually comprised of non-credentialed sales and marketing professionals claiming to be “ERC experts” or “consultants.” The reality is that they take advantage of employers by submitting high-risk eligibility positions, often solely reliant on CDC/OSHA guidance or supply chain disruptions, to essentially qualify all businesses for the ERC, regardless of actual eligibility, to inflate their own fees.

Here are some signs that a “firm” is actually an ERC mill:

  • No Ownership or Accounting Management. Most ERC mills are owned and operated by “serial entrepreneurs” with little to no experience in the specialized tax, accounting, or legal industries.
  • Outsourced Tax, Accounting & Legal Service Functions. ERC mills place a lot of focus on sales, marketing, and business development efforts. There may be a token CPA or lawyer in-house, but most rely on third-party accountants and lawyers to perform the tax, accounting, and/or legal work required in connection with the ERC, meaning employers have little visibility into and can’t have any real confidence in who is handling their filings.
  • Aggressive Marketing Tactics on Eligibility. ERC mills manipulate innocent business owners with promises of high returns without risk. Proposed eligibility positions are often based on obscure supply chain disruptions and reliance on non-qualifying federal guidance issued by the CDC and OSHA. These are considered weak positions in the industry and have a lower likelihood of withstanding potential audits.
  • Disclaimers to Shift Liability. Most ERC mills include significant disclaimers and waivers of liability within their service agreements. They do this because they know they aren’t providing acceptable services to their clients and thus will not stand behind their work product.

Partner with Sagemont Tax to File Your Claim

Consulting with experienced, qualified tax and legal professionals is the first step to determining ERC eligibility and filing a legitimate claim for the credit. You can avoid the hassle of filing a claim by employing the help of a qualified advisor, like Sagemont Tax.

Expert ERC firms are led by certified public accountants and tax attorneys with extensive experience in the legal test related to the ERC as well as navigating IRS audits. With an arsenal of professionals on hand, qualified advisors will ensure that all eligibility criteria are met for each applicable period before submitting a claim for the credit. They will also provide a detailed, CPA-certified, audit-ready report to their clients detailing their eligibility and wages claimed. Additionally, they will advise employers to refrain from claiming or overclaiming the credit when they do not have a clear path to eligibility.

At Sagemont Tax, we pride ourselves on delivering white glove, customized service to every client regardless of business size. We believe in proving the value of our service prior to our clients signing a contract and always conduct an initial no-obligation, cost-free analysis of eligibility. Once an agreement is signed, we stand by our work and take responsibility for our clients’ tax positions that extend beyond the filing itself. Additionally, our CEO, Kenneth Dettman, CPA, signs every ERC filing as the paid preparer and we provide a CPA and attorney-certified Eligibility Report that’s audit-ready to provide our clients with peace of mind.

Contact us to get started or with any questions you may have about the Employee Retention Credit.

 

Written by Adam Fischer, Esq. – General Counsel, Sagemont Tax

Written By:

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Adam Fischer, Esq.

General Counsel
Adam Fischer, Esq.

Adam Fischer, Esq.

General Counsel
As General Counsel for Sagemont Tax, Adam Fischer advises the company on a variety of legal matters ranging from corporate governance, compliance, and risk management as well as contract negotiation. He also works directly with clients in evaluating their potential eligibility for the ERC program by virtue of the full or partial suspension of operations analysis. This involves working closely with management and operations teams to analyze the...
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