The pandemic was four years ago, so why are we still talking about the ERC (Employee Retention Credit)?

It's a topic that doesn't seem to go away, and so Lynne is joining Ash for another episode to jump into the complexities of this ever-evolving topic. Many are still unclear about the intricacies of ERC eligibility and the recent legal developments affecting those who have claimed it. Lynne breaks down the essential criteria for eligibility, updates on IRS actions, and necessary precautions and responsibilities for dental practice owners.

In other episodes, they have warned of the potential pitfalls of engaging with ERC mills—companies promising easy money through the ERC without proper adherence to the rules. Now, as the situation unfolds, Lynne updates us on the IRS crackdown on invalid claims, criminal prosecutions, and what this might mean for dental practices caught in the middle. She also sheds light on the IRS's recent offer allowing practices to return erroneous claim amounts for a limited-time reduced penalty.

If you're unsure on what steps you should take with your ERC claim or if you have specific questions about any of these topics for your practice, please feel free to reach out to the Edwards & Associates team. Please also contact us to find out more about Ash's financial course. Visit us at: https://EandAssociates.com

Episode Breakdown:

• The Employee Retention Credit (ERC) Discussion
• Misinterpretation and Abuse of ERC Claims
• Criminal Prosecutions
• Validity of ERC Claims
• Red Flags Identified by the IRS
• Voluntary Correction Program Offered by the IRS

Welcome to Beyond by Wings, the business side of dentistry, brought to you by Edwards and Associates, PC. Join us as we discuss how to build your dental practice, optimize your income, and plan for your future. This podcast is distributed with the understanding that Edwards and Associates PC is not rendering legal, accounting, or professional advice. Listeners should consult with their business advisers before acting on any of the information that is shared. At Edwards and Associates, PC, our business is the business of dentistry. For help or more information, visit our website at enassociates.com. Hello, and welcome to another episode of Beyond Bitewings. In today's episode, we are yet again going to be talking about the dreaded ERC, which is the employee retention credit for those of you out there that are still not aware of what it is.

And, to talk more about the subject matter, we have a returning guest, Lynn Ledbetter.

Hey, I'm back.

Hi. I'm super excited to have you back on our new episode on ERC.

Yes. I I don't know how many times I've been here talking about ERC. Maybe 3 now.

Mhmm.

Maybe this will be the last one. I hope so.

You know, it's funny you should mention that because we actually said that in the last episode that that this would be the last episode of

the conference.

And here we are again Yep. Doing an episode on it.

Yeah. So update. ERC update. That's what this is about.

Correct. Yes.

Okay. I'm just gonna jump right into it. So I hate to say I told you so, but I told you that you aren't eligible for these things. But seriously No. The eligibility criteria for ERC was very specific.

Mhmm.

And these ERC mills were set up, and then it kept loosening and loosening and interpreting, quote, interpreting the rules and made it to where, basically, if you had employees and warm bodies in your office, you could, according to them, apply for the ERC and just get 1,000 and tens of 1,000 and 100 of 1,000 of dollars, and that's what has happened, And it is being determined now. The these cases are finally going through the courts Mhmm. And are being determined not to be eligible as we suspect that they were not. It's just that the IRS was too slow to catch up with the fraud.

Right.

And so we've been warning clients, taxpayers, whoever will listen for years now that this is not according to the rules Mhmm. That this is fraudulent. Mhmm. And if you're caught, there's gonna be repercussions. You're gonna have to worst best case, pay it back with penalties and interest and lose the fees that you've paid to the ERC people and and all of this sort of thing. There's the risk that you, you know, you have to amend your personal return and pay that tax. There's the risk that you won't get that tax back because the time period's too long. So all of these things, we were saying, this is a danger.

You need to watch out for this danger. So

Right. Right.

That's what's going on now. The IRS in September of 23 put a moratorium on paying out ERC credits. And so if you have anything in the pipeline, it is not moving, and it's still not moving. The lattice the last update that I heard was about maybe last week of January that they still have not started processing the ones in that have come in new. And the ones that they are looking at, they're going through in such minute detail to make sure that they're valid. It's taking just eons of time to go through each one and decide if it's valid or not valid and pay it out. So we're looking at a long, long time before these get processed and paid, if at all. If if you're lucky, they'll just say, oh, it's not valid, and they won't give you the money.

Otherwise, you're gonna be subject to criminal prosecution. They've started prosecuting these. Most of the ones they've prosecuted have been subject subjected to fines and jail time. And so their criminal enforcement division, that's all they're working right now. So

Highlighting on the word criminal.

Yes. Criminal. Yeah. It's criminal it's criminal investigation. And so right now, only 18 have gone to trial, but these are giant cases. $2,950,000,000 in total of the cases. But of the 18 that have been tried, 11 have resulted in convictions. So that's a high conviction rate.

Mhmm.

And And about 24 months jail sentence has been associated with those. And, of course, it's not the mills, the ERC mills that are being tried. It's the taxpayer. Now they will be going after the mills also when they can, but they're gonna close shop and be gone. And that was also part of the warning that us and and responsible CPAs across the country have been saying. The ERC mills are going to be gone once this dries up and you are gonna be left high and dry to fight this on your own and that's what we're seeing.

Yes. And our playlist can attest to that. Thank you.

You guys

can go back to the earlier episodes to see that on and on again, we've been trying to let our listeners and our clients know about this.

Now will the smaller ones be caught and scrutinized to that much of a degree? I don't know because they've only got so many resources, so they may focus just on the really large ones. But I don't know what they consider really large. I mean, we've seen taxpayers across the country get a $100,000 that they weren't entitled to. That sounds large. I don't know what their threshold is gonna be. That's right. But there are also some that are very valid credits that we filed many for our clients that were valid, as well as non clients that would would call us and ask us for help with those. And so there are some valid ones.

If your claim was valid, I don't want you to be, afraid that that's easily proven. But you had to meet a couple of requirements, which one was a governmental closure

Mhmm.

That had to be a governmental order, not a suggestion. It couldn't be OSHA recommending it. It couldn't be the dental, board recommending it. It couldn't be even CDC recommending it. It had to be it it could be a local governmental order. So, like, for instance, us, Dallas County had a requirement to shut down for a while. Didn't apply to us because we were considered

Essential.

Essential. Yes. Essential. I couldn't think of the magic word, essential workers. Well, unfortunately, so were medical workers. So that pretty much eliminates the dentist right there and all the doctors and things like that. Now they were shut down for elective procedures. Correct.

So nonemergency procedures, nonessential procedures. So there there was in Texas that the governor shut down for a while. Places like Dallas County, other counties, New York, even though they were much more strict about staying in and sheltering at home, they were not mandated to shut down. Those do not qualify for closures. So that's what people are surprised about. Oh, no. I I had to stay at home. No.

Unfortunately, it was just a recommendation, and that doesn't count. Should it count? Yes. It it should, but it doesn't. And then the other reason was if you had a reduction in business of a per certain percentage, and that percentage varied. So I'm not gonna go into what that was. But that was the other reason that was valid, and there were many, many companies around the states that that did have that decline, and so they were eligible. But what these mills were doing was using things like supply chain. I had a supply chain issue, and, yeah, that meets the qualifications.

Well, no, it doesn't, Unless that supply chain was subjected to a government order. So you've gotta go find your supplier, get them to show you the government order that shut them down, that couldn't get you your supplies, you're not gonna you're not gonna find that. So they have given some red flags to watch out for. If you if you see if you filed under some of these premises, then you are probably in an ineligibility situation, and you might need to be concerned. One of those is too many quarters being claimed, like every quarter that ERC was available. If you're claiming for every quarter, that's generally not that's not the norm when you apply the actual rules, so that's a red flag. Using government orders that don't qualify like OSHA or CDC, that doesn't qualify. Too many employees and using every dollar that those employees made.

So if you recall, there was also PPP loans going on at the same time, and PPP covered some of those wages. Well, those wages are not eligible for ERC. So if you're using all of your employee wages, you're probably using too many wages. And that's where it got complex and where the mills were not checking with the accountants to see what wages they used for PPP. So we were very surprised when these companies were just, here here's your credit number. Wait. You didn't even ask us what what wages we use. So because you can't have those pieces, and we knew that was a red flag.

Using supply chain issues, that's not allowed in most cases. And then the others pretty much don't apply to our clients because our clients are good and ethical. And those were would be if you didn't have any employees. You're claiming an ERC for and you didn't have any employees that quarter.

What are you saying? You're saying ERC would stands for employer retention credit.

Yes. If you're not an employer, you do not get a credit. If you weren't in business at all just making up numbers, of course, you you don't qualify. So those things, I'm not concerned about those, but supply chain issue is the big one. So the IRS is given a sort of a voluntary a credit that you were not eligible for, then you can return that, and you get to return it at a discount. So if you return that by March

31st.

22nd

22nd.

I thought it was the 31st also. I just looked it up today. By March 22, 2024, then you only have to return 80 percent. And the reason that they're doing that is because they realize it's not the the taxpayers, really, that fell for these big promises of the ERC mills, and they didn't understand the rules. And so what was happening is, you know, anywhere from 15 to 30 to even 35% of the credit was going straight to the ERC mill, where a reputable company would charge you a a fee for that work, not a percentage of collections. That's just obviously rife with fraud. So anyway, the IRS is saying, okay. You know what? We don't really blame you.

We understand why you thought you were eligible, and we're not gonna penalize you to be out this money. So just give us back the 80%. You can keep the 26%, which basically covers the fee that the ERC mill charged you, and we'll call it even, and we'll call you good, and and there won't be any penalties. We'll all walk away happy. But that that ends, and after that time period, you have to manually undo the filings. You have to file amended 9 40 ones. Most people won't go to that trouble. They'll just wait to see if the IRS finds it.

And if if they do, you're gonna be subject to higher penalties and things like that. Probably not jail time, but, you know, it depends on what the circumstances were around that fraudulent claim. Yeah. I suspect.

That's right.

So

Yeah. I was happy to hear that they were, they said that, just give us back about 80%. Yeah. Because I always wondered that. I'm like, these meals are charging, as you said, up to 35%.

Yeah.

And how is it fair for the clients that are like, you know, we didn't know any better. Like, we tried to do everything by the point.

Right.

You know? This was a dedicated company that apparently specializes Right. In this.

Right.

How was I to know?

And they made I mean, ultimately, when the client signed off on that credit, it says you're taking responsibility. You're telling me that your wages are eligible. You know, this is all on you and not us. But when they're given their sales pitch, we know what we're doing. We've researched these rules. The supply chain issues do apply. Trust me. Trust me.

Trust me. So they were they were believing that because they considered them a trusted adviser, but they were only looking at the revenue that they could generate from those credits.

Absolutely. Mean, even their pitch was so salesy. It was like 26,000 per employee up to 26,000 per employee. You have 10 okay. That's about potentially $260,000 you can get. Yeah. Wow, I mean, and can you imagine like, you know, going through COVID itself, going through, you know, high turnover rates, increased expenses. They're having to buy, like, additional equipment Yeah.

PPE. You know, it's just

It's enticing because it's helpful. I understand all that. So it it was unfortunate. And I I am happy that the IRS recognized that and is sort of giving them a a little break there. Because if if you see that you did this and you're willing to just let's make it right, then they're giving them a break. That's really not IRS style. So I was really happy

That's right.

That they're showing a little compassion and grace, but it's for a very limited time. Limited time only.

Yes. And, again, that's March

Yeah. March 22nd.

Of 2024. Yes. Okay. So not too far away.

Not too far away and maybe very close

That's

to this drop date.

That's right. That's right.

So, but we've been spreading the word. So hopefully you've already heard about it.

Alright. Well, thank you so much for sharing all that ERC information all over again with our listeners. And I'm not gonna jinx it. I'm not gonna say it. Okay. I'm just gonna leave it here and not say this is gonna be the last episode. Just, you know, thank you for being here and sharing all that information. Till next time.

Take care.

Thank you.

Bye. Bye. Thanks for listening today. Be sure to subscribe to Beyond by Wings on your favorite podcast platform. For more information, you can follow us on Facebook, Twitter, and LinkedIn, or reach out to us on our website. You can also shoot us an email at info at e and associates dot com.