While most private club managers or operators have previously evaluated the merits of the Employee Retention Credit (ERC) for their organization (and have initially determined ineligibility), many may still not be aware of the unique opportunities available for private clubs; including those that had only a limited portion of their operations impacted.
For example, most private clubs tend to focus on the stability of their top line revenue, often propped up by COVID-19 resistant member dues and greens fees. With the high demand for golf and recreation activities during the pandemic, it is a natural reaction for private club managers to feel like their organizations were relatively resistant to the impacts of COVID-19. However, as many business owners can attest, the absence of a top-line revenue decline does not mean that certain portions of their organization did not struggle adjusting to COVID related restrictions; and many organizations are surprised to learn of a lesser known, but fully supportable, path to ERC eligibility that can be taken by solely evaluating the impact that COVID executive orders had on their food and beverage operations (“F&B operations”).
According to the guidance from IRS training materials released in June of 2023, if a private club can demonstrate that (i) F&B operations comprise 10% (or more) of their total 2019 revenue or employee service hours; and (ii) the F&B operations were impacted by more than 10% due to adherence to COVID-19 governmental orders, then 100% of the private club’s employee wages can be ERC creditable (subject to per year or quarter limits). This eligibility generally lasts until the expiration of social distancing orders (i.e., typically through Q1 or Q2 2021, depending on the locality).
If you manage or are on the board of a private club that either (i) has not yet claimed the ERC, or (ii) claimed the ERC, but not through the expiration of the state or local social distancing orders, there is a very good chance there is an untapped ERC opportunity for your organization!
After nearly three years from its original debut in the 2020 CARES Act, the ERC remains a lucrative, untapped cash infusion for employers across the U.S. Unfortunately, the ERC has become a controversial and risky proposition due to widespread fraud and aggressive tactics perpetuated by “ERC mills,” but that should not detract eligible taxpayers who deserve the credit from claiming their rightful portion of the federal benefit.
Despite the evolving warnings, the IRS has remained steadfast on two universal messages:
Message #1 – Eligible employers should continue to pursue and claim the ERC, provided they meet the IRS’ “Eligibility Checklist.”
Message #2 – Employers should work with a trusted tax professional to pursue the ERC claim.
Since May of 2021, Sagemont Tax has been working with a wide variety of employers across many different industries, including both for-profit and non-profit enterprises. While at this stage, the majority of for-profit hospitality enterprises have pursued the ERC, we still find that many non-profit enterprises with an F&B or hospitality component within their operations have either (i) not yet claimed the ERC, or (ii) have claimed the ERC, but not to its maximum potential.
To establish eligibility for the ERC, private clubs must either have experienced a substantial decline in gross receipts (the “Revenue Test”) or suffered a “full or partial suspension of operations” due to a COVID-19 governmental orders (the “Suspension Test”).
As outlined IRS training materials, for the Suspension Test to be met on a “partial” basis, an employer must show that certain restrictions or modifications must have had “(a) more than a nominal effect [10% impact on ability to provide goods or services] on (b) a more than nominal portion of business operation Safe harbor: 10% of revenue or employee hours in 2019).”
What the above test translates to in the context of private clubs is that the entire operations or revenues of a club are not required to be analyzed for the purpose of meeting the Suspension Test, provided a 10% “portion” of the clubs operations are impacted by more than 10%. Therefore, despite not meeting the Revenue Test, or perhaps even not experiencing any revenue decline, private clubs that have a more than nominal portion of their operations (i.e., greater than 10%) devoted to F&B operations are typically excellent candidates for the ERC under the Suspension Test.
Sagemont Tax has successfully worked with many Section 501(c)(7) organizations, including private clubs, to maximize their ERC. To ensure accuracy and adherence to the complex ERC tax code, it’s best to work with a firm of tax and legal professionals, namely CPAs and attorneys, specializing in the ERC. An experienced ERC firm can guide you through the process and ensure your filing is accurate, provide a comprehensive analysis, and present the lowest risk of an audit.
Sagemont Tax is an ERC advisory firm offering a full suite of ERC services backed by CPAs and legal experts who’ve worked at top firms nationwide. We offer tax and legal guidance to clients whether they’re filing an initial ERC claim or amending a previous claim. We stand by our work and take responsibility for our clients’ tax positions; our CEO and former partner at a top consulting firm, Kenneth Dettman, signs every ERC filing as the paid preparer. In addition, we provide a CPA-certified Eligibility Report that’s audit ready to provide our clients with peace of mind. Lastly, our engagement services extend beyond merely filing your ERC claim, as our IRS tracking team lets you know where your ERC claim is every step of the way until you receive your ERC checks, and our audit support team will provide support in an ERC audit should one arise.
Country Club in Orange County, FL
*Immediately prior to end of social distancing order on May 3, 2021
Initial ERC Claimed by Company’s CPA**: $452,503,34
Additional ERC Claimed by Sagemont***: $912,150.51
** Using full closure of indoor dining and events
***Using F&B “Portion” Partial Suspension through May 3, 2021