Tax Refund Guarantee


What is the Tax Refund Guarantee?

The Tax Refund Guarantee is an optional “add-on service” that Sagemont Tax may offer to an Sagemont Tax Client (“Client”) to provide financial protection (in the form of a guaranty or third-party insurance as discussed below) for their employee retention credit (“ERC”) claim(s). Should the Internal Revenue Service (“IRS”) assess an unfavorable “Adjustment Amount” (defined below), the Tax Refund Guarantee allows a Client to still receive and/or maintain their ERC claim.


What is the Adjustment Amount?

Under the Tax Refund Guarantee, an Adjustment Amount is any amount of any ERCs applied for with Sagemont Tax’s assistance that have been denied or required to be returned to the IRS due to the IRS concluding that the Client was not an “eligible employer” for all or a portion of the ERC claim period.


How is the Adjustment Amount Computed?

The Adjustment Amount is equal to the total unfavorable IRS adjustment(s) less: (i) all fees owed to Sagemont Tax and/or affiliated entities; and (ii) a retention equal to 10% of the ERC. The retention is akin to a “deductible” that you might encounter on an insurance policy.


Does the Tax Refund Guarantee Protect Against Penalties and Interest from the IRS?

The Adjustment Amount includes any penalties or interest on penalties imposed or assessed by the IRS, provided such penalties and interest do not cause the Adjustment Amount to be greater than the total ERC claim. In general, such penalties should be capped at 20% of the ERC claim; and therefore, safe to expect that penalties and interest on such penalties should not cause the Adjustment Amount to be greater than the ERC claim.


When is My Credit Not Protected by the Tax Refund Guarantee?

The Tax Refund Guarantee does not protect you against adjustments due to: (i) legislative changes after the Tax Refund Guarantee is issued; (ii) omission, untrue or inaccurate information provided by Client or their representatives; (iii) inconsistent treatment or reporting by Client (e.g., failure to make necessary income tax adjustments); (iv) fraudulent or criminal conduct of Client; (v) administrative errors made by the IRS or U.S. Postal Service in calculating, processing, and delivering the physical refund checks; and (vi) failure to properly notify Sagemont Tax of the proposed adjustment(s).


How Long does the Tax Refund Guarantee Protection Last?

The Tax Refund Guarantee expires on the date the statute of limitations lapses for the IRS to examine your amended payroll tax filing. For calendar year 2020 quarters, this date is April 15, 2024. For the first and second quarters of 2021, this date is April 15, 2025. For the third and fourth quarters of 2021, this date is April 15, 2027.


When Can I Opt-In for Coverage by the Tax Refund Guarantee?

Qualifying Sagemont Tax Clients may be offered the Tax Refund Guarantee at the time the Client Engagement Letter (“CEL”) is executed (with limited exceptions after the CEL is executed, but in all cases, before the ERC Claims are remitted to the IRS).


How Will Sagemont Tax Determine If I Qualify for the Tax Refund Guarantee?

Sagemont Tax will evaluate Client’s industry, potential or actual ERC amount, and the availability and sufficiency of certain source documentation to evaluate whether a particular Client may qualify for the Tax Refund Guarantee. In the event Sagemont Tax offers the Tax Refund Guarantee to a Client prior to signing the CEL and later determines that Client is no longer qualified (i.e., after conducting functional interviews with Client and retrieving additional data), Client will reserve the right to cancel Sagemont Tax’s CEL in full, or otherwise come to a mutually agreed upon path forward. 

For Clients that Sagemont Tax does not prequalify for the Tax Refund Guarantee at the time the CEL is signed, Sagemont Tax reserves the right to offer the Tax Refund Guarantee at a later date.


How Much More will the Tax Refund Guarantee Cost?

If Sagemont Tax offers the Tax Refund Guarantee at the time the CEL is signed, Sagemont Tax will offer a combined fee of 20% – 25%, which includes Sagemont Tax’s regular  scope of ERC consulting services, as well as the Tax Refund Guarantee. The 20% fee will apply to Client opting to pay Sagemont Tax’s fees due in full at the time the ERC Claims are remitted to the IRS. The 25% fee will apply to Clients seeking to defer Sagemont Tax’s fees until the time the IRS processes their refund checks. 

To the extent that the Tax Refund Guarantee is offered after the CEL is signed, the Tax Refund Guarantee fee may vary from 8 – 12%, depending on the specific Client facts and circumstances, and will be incremental to the Fee Option selected pursuant to the traditional CEL.


Is the Tax Refund Guarantee Insurance?

The Tax Refund Guarantee is not a regulated insurance product, but rather a financial guarantee.


Who is the Counterparty to the Tax Refund Guarantee?

Generally, the Tax Refund Guarantee will be issued by Waverly Guaranty LLC, an affiliate of Sagemont Tax, which is backed by Waverly Risk Advisors Corp, a licensed and regulated insurance company in the State of Delaware that carries sufficient capital reserves, as determined by a third-party actuary. 

At Sagemont Tax’s option, the Tax Refund Guarantee may be substituted for a tax insurance policy issued by Certa Insurance, the tax insurance division of Lloyd’s of London, which maintains an A+ (Strong) credit rating from Standard & Poor’s. 

To the extent Sagemont Tax substitutes the Tax Refund Guarantee with a tax insurance policy from Certa, Sagemont Tax will ensure each respective Client receives the equivalent risk coverage and outcomes that would otherwise be provided through the Tax Refund Guarantee (i.e., the Adjustment Amount will be computed in an equivalent manner).


Is the Tax Refund Guarantee the Same as an Errors and Omissions (“E&O”) Coverage?

No. The Tax Refund Guarantee is not the same as Sagemont Tax’s E&O professional liability insurance or similar products. While we are aware of some ERC service providers claiming that their E&O policies will cover a Client’s financial losses related to their ERC claims, we believe these claims to be misleading (particularly in light of these service providers advertising that their services are 100% risk free as a result of those policies).

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