The Employee Retention Tax Credit (ERTC) provides a 70% tax credit on the first $10,000 in wages per employee. For each quarter the business meets criteria in 2021, a 50% tax credit equivalent to $10,000 in wages per employee in 2020 is granted for qualifying businesses.

The tax credit refund can still be claimed by amending payroll tax returns. The qualifying criteria being applied by our firm is the reduction in revenue test, subject to a government shutdown as a non-essential business.

A few consultants are saying every business can qualify for the ERTC, claiming specific whole industries qualify. The retail automobile industry seems to have been targeted as qualifying. I have received several communications from clients – contacted either directly or through a referral from a friend by these consultants – claiming they qualify without reviewing any of the supporting data. The fees charged by these consultants range from a low of 5% of the credit calculated to as high as 15%.

In Eligible Employers Guidance, the ERTC states, in essence: “an employer [with an essential business] may be considered to have a full or partial suspension of operations … if the business’s suppliers are unable to make deliveries of critical goods.” An aggressive approach to the interpretation of this section is being used to qualify businesses that do not meet the revenue or direct shutdown order criteria.

Any dealer engaging a tax credit specialist should do so with the knowledge that their refund claims are subject to audit and could also be subject to interest and penalties if they are determined to be non-qualifying.

We suggest the following inquiries be made before engaging a tax credit specialist:

1. How long has the specialist been in business?
2. How many clients have they represented before the IRS, and how many CPAs, attorneys, and other qualified personnel do they employ to represent their clients before the IRS? Curriculum vitae (CVs) on these individuals should be provided.
3. Does the specialist reimburse defense costs, penalties, and interest?
4. Does the specialist follow the published guidance to ensure that claims will be made only in cases that adhere to the letter of the law?
5. Do they provide a clear and quantifiable substantiation of the qualification criteria before asserting the business is eligible?

We encourage all dealerships to determine if they qualify for this benefit provided by the federal government and have complete and accurate data to substantiate any claim.

Dealerships should consult with their CPA and/or attorney before signing an ERTC assistance contract to ensure there are no misunderstandings with the provider for the risks you and they are assuming in connection with any credit received.