• ERC Initial Survey

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  • Before You Begin - Please Read It This Completely

    This survey aims to gather the initial information to determine the easiest and quickest path to qualification under the Employee Retention Tax Credit (ERTC) program.

     

    Businesses with less than 500 full-time employees can qualify for Employee Retention Credits by meeting one of two criteria:

    1. Either experiencing declines in revenue in 2020 or 2021 when comparing to 2019 (certain thresholds must be met by quarter) or
    2. Experiencing a full or partial suspension of operations due to governmental orders, including "nominal impact."

     

    Also, if your business began operations after February 15, 2020, you automatically qualify for these credits in Q3 and Q4 of 2021. No other criteria are required (meaning you didn't have to suffer a decline in revenue or shut down due to mandates).

     

    Note:  Employers with more than 500 full-time employees can apply the ERC towards qualified wages paid to employees who were not working during a quarter because the business suspended operations or had a significant decline in gross receipts.  However, only those wages paid to an employee for not providing services are qualified wages

     

    You should also know that wages paid to the majority owner and any relatives are potentially eligible for these credits. We know there are ERTC experts telling people they must have at least 5 W-2 employees, and that simply is not true. These companies just don't want to deal with small clients.

     

    When a new client comes to our CPA Firm, we always begin by gathering their revenue for each quarter of 2019, 2020, and 2021 . . . and then we apply the math to calculate the percentage declines.

     

    This calculation of the decline in revenue is our first choice because it's objective. The math doesn’t lie. The IRS could ask you to prove the amount of revenue you are reporting to us for each quarter (for the calculation), but that’s the extent of their review of your eligibility.

    If you don’t qualify for all six quarters of the ERC program based on a decline in revenue, then we next consider how your business was impacted by governmental orders. This is where the subjectivity prescribed by the IRS can become very complex and why it is particularly important for you to work with a registered CPA Firm who can practice before the IRS.

     

    Certain other tax credit and relief programs that you may have participated in or received benefit from have to be taken into consideration in the calculation of qualifying wages.

    These credit and benefit programs include;

    • Credit for Increased Research Activity (R&D) Tax Credits
    • Work Opportunity Tax Credits (WOTC)
    • Families First Coronavirus Response Act (the "FFCRA") tax credits
    • Restaurant Revitalization Fund (RRF) benefits
    • Shuttered Venue Operators Grant (SVOG) benefits
    • Indian Employment Credit (IEC)
    • Paycheck Protection Program (PPP)
    • Credit for Employer Differential Payments
    • Empowerment Zone Employment Credit
    • Employer Wage Credit for Employees Who are Active Duty Members of the Uniform Services
    • Employer Credit for Paid Family and Medical Leave
    • Credit for Paid Sick Leave

     

    So here’s how we’ll do this . . .

    On the following pages, we will be asking you questions that will help us refine your qualification under revenue reduction.  If you answer yes to any of the the questions as they related to other tax credit or benefit programs that you may have participated in, we will provide guidance to the additional information needed to evaluate how that participation effects this program.

     

    Once we have all the necessary information, we’ll execute the math and tell you, definitively, which quarters you qualify for under revenue reduction - no subjective judgment required.

     

    Should you fail to qualify for one or more quarters under revenue reduction, we will send you a second survey designed to evaluate the more subjective qualification criteria- Experienced a full or partial suspension of operations, including "nominal impact."

     

     

  • What is an essential business?

     

    Generally, an essential business will be exempt from direct government orders suspending commerce, travel, or other activities.11 Thus, on the surface, it would appear that an essential business would not qualify for the retention credit. However, a deeper analysis reveals direct and indirect effects on commercial activity resulting from government orders related to COVID-19.

    The FAQs outline specific fact patterns in which an employer is or is not an eligible employer. According to FAQ 30, if an essential business is excluded from a business suspension order, it will not be considered to have a full or partial suspension of operations for purposes of the retention
    credit.

    Despite the guidance that an essential business will not be considered suspended if it’s allowed to continue operations under governmental orders, FAQ 31 makes an exception for when the essential business cannot get materials because of government orders affecting its suppliers:

     

    If the facts and circumstances indicate that the essential business’s operations are fully or partially suspended as a result of the inability to obtain critical goods or materials from its suppliers that were required to suspend operations, then the essential business would be considered an Eligible Employer and may be eligible to receive the Employee Retention Credit.Example: Employer A operates an auto parts manufacturing business that is considered an essential trade or business in the jurisdiction where it operates. Employer A’s supplier of raw materials is required to shut down its operations due to a governmental order. Employer A is unable to procure these raw materials from an alternate supplier. As a consequence of the suspension of Employer A’s supplier, Employer A is not able to perform its operations. Under these facts and circumstances, Employer A would be considered an Eligible Employer because its operations have been suspended as a result of the governmental order that suspended operations of its supplier. 


    The key element of this FAQ is the acknowledgement that there may be circumstances under which an essential business is unable to perform its operations because the operations of a third party are suspended as the result of COVID-19-related government orders. The key takeaways are:

    1. identify vendors that have been affected by COVID-19-related government orders to suspend operations; and
    2. identify how those government orders have resulted in the essential business not being able to conduct specific activities within its business operations.


    Demonstrating that an essential business has specific types of business activities that are affected by a vendor supply chain disruption would show that the essential business has been partially suspended. In contrast, according to FAQ 32, experiencing a reduced volume of business operations simply because customers are required to stay at home under governmental orders would not be viewed as partially suspending an essential business:

     

    An employer that operates an essential business that is not required to close its physical locations, or otherwise suspend its operations, is not considered to have a full or partial suspension of its operations for the sole reason that its customers are subject to a governmental order requiring them to stay at home.Example: Employer B, an automobile repair service business, is an essential business and is not required to close its locations or suspend its operations. Due to a governmental order that limits travel and requires members of the community to stay at home except for certain essential travel, such as going to the grocery store, Employer B’s business has declined significantly. Employer B is not considered to have a full or partial suspension of operations due to a governmental order. However, Employer B may be considered an Eligible Employer if it has a significant decline in gross receipts. 


    According to the FAQs, there is a nuanced distinction between (1) supply chain disruptions causing a suspension within part of the essential business operations and (2) reduced customer demand, which affects revenue but does not cause a partial suspension of operations. This distinction between “essential” and “nonessential” businesses is not in the statutory language of the CARES Act, and the distinction between governmental edicts that cause a partial suspension of the business because of reduced customer demand versus governmental edicts that cause a partial suspension of business operations because vendors are unable to perform does not seem well founded under the statute.

    FAQ 32 appears inconsistent with the statute, which refers to the operation of a trade or business being “partially suspended . . . due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings . . . due to the coronavirus disease 2019.” In the FAQ 32 example, the operations of the auto repair business have been affected by stay-at-home government orders. The resulting reduction in business will cause a partial suspension of the repair business activity, creating fewer working hours for employees.

    It seems appropriate for the legislation to seek to keep the repair business employees voluntarily paid by their employer the same way that it seeks to keep the employees of a closed restaurant voluntarily paid by their employer. As noted, the statute simply links qualification to the identification of government orders limiting commerce, travel, or group meetings because of COVID-19. The distinction between customers or suppliers causing a suspension of operations appears arbitrary and contradictory to the intent of the law. Congress declared the purpose of the CARES Act as “providing emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.” It did not draw a distinction between businesses that were affected as the result of governmental orders affecting their suppliers, rather than their customers.

     

    Even if a reduction in demand is insufficient to qualify as a partial suspension, the other possibility would be for the auto repair business in FAQ 32 to evaluate its qualification by considering potential direct and indirect effects on the business, such as: What government orders affected the auto repair business? Were limitations placed on operating hours? Was there any effect on the availability of parts to sell to customers? Were there travel restrictions limiting the ability to receive or make deliveries?

     

    B. Effects on the Essential Business


    Beyond customer demand, there are likely other effects that could qualify an essential business as an eligible employer. Because it’s difficult to apply all the qualifying criteria simultaneously, they can be reordered as:

    1. identify an order from government related to COVID-19 that limits (A) commercial activity, (B) travel, or (C) group meetings; and
    2. that partially suspends operations.


    At a high level, there has been very little direct impact from COVID-19 on business. That is, the number of actual employees and customers suffering the effects of COVID-19 is relatively small compared with the total population. Most of the damaging effects on businesses have not been from the illness itself but rather from the government orders that have shut down or hurt almost every business, including essential businesses. Therefore, it may be more effective to start without a filter and focus on identifying all the COVID-19-related effects on the essential business. It is likely working from the bottom up — that is, the COVID-19-related effects on the business are related to government orders, not to the illness itself. This analysis could begin by reviewing the material segments of the business, posing these questions:

     

    1. What effect has COVID-19 had on the business?
    2. How was the COVID-19 impact connected to government orders?
    3. Will the connection between the government order and the COVID-19 impact qualify as a partial suspension of operations?
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  • If you received PPP Forgiveness, we would need the following;

    A copy of the original SBA PPP loan application

    A Copy of the SBA Form 3508 submitted to the SBA for forgiveness

    A Copy of the SBA forgiveness Letter

     

    Note:  If you do not provide the Form 3508, we will have to assume that 100% of the forgiven amount was spent on payroll.  This may reduce the amount of your ERC refund.

  • Participation In Previous Tax Credit Programs

  • R & D Credit- Yes.  If you answered yes you to having received Credit for Increased Research Activity (R&D) in any of the tax years 2019, 2020 and 2021, please provide a copy of the application package with any supporting documentation.  Please provide a copy of and Form 6765s.

  • WOTC Credit- Yes.  If you answered yes to having received Worker Opportunity Tax Credit in any of the tax years 2019, 2020 and 2021, please provide a copy of the application package with any supporting documentation.  Please provide a copy of any Form 5884 or 3800.

  • FFCRA Credit- Yes.  If you answered yes you having received Families First Coronavirus Response Act Tax Credits in any of the tax years 2019, 2020 and 2021, there should not be a need for you to submit anything.  We will should be able to pick up the credit from the submitted Form 941s.  Please provide a copy of any Form 7200s.

  • Restaurant Revitalization Fund- Yes.  If you answered yes you having received Restuarant Revitalization Fund (RRF) benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the SBA Application.

  • Shuttered Venue Operators Grant- Yes.  If you answered yes you having received Shuttered Venue Operators Grant (SVOG) benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the SBA Application.

  • Indian Employment Credit- Yes.  If you answered yes you having received Indian Employment Credit (IEC) benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the Form 8845 for each year.

  • Credit for Employment Differential Wage Payments- Yes.  If you answered yes you having received Credit for Employment Differential Wage Payments (CEDWP) benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the Form 8932 for each year.

  • Empowerment Zone Employment Credit- Yes.  If you answered yes you having received Empowerment Zone Employment Credit (EXEC) benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the Form 8844 for each year.

  • Employer Wage Credit for Employees Who are Active Duty Members of the Uniform Services - Yes.  If you answered yes you having received Employer Wage Credit for Employees Who are Active Duty Members of the Uniform Services benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the Form 8932 for each year.

  • Employer Wage Credit for Paid Family and Medical Leave - Yes.  If you answered yes you having received Employer Wage Credit for Paid Family and Medical Leave benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the Form 8844 for each year.

  • Credit for Paid Sick Leave - Yes.  If you answered yes you having received  Credit for Paid Sick Leave benefits in any of the tax years 2019, 2020 and 2021, we will need a breakdown of how the benefits were utilized as it related to payroll and health benefits.  Please provide a copy of the Form 7200 for each year.

  • W-2 Wages of majority owners or their family members don’t qualify for ERC credit. Please list any names that apply.

    IRS definition of “Family members”: The IRS defines family members as: Spouses, Children, Grandchildren, Brother/Sister, Step brother/Sister, Father/Mother, Ancestor, Stepfather/mother, Niece/Nephew, Uncle/Aunt, Son/Daughter-in-law, Brother/Sister-in-law, Father/Mother-in-law.

  • When answering the total W2 employees information on future questions. You must include the totals for all businesses.The Aggregate Rule states all employees must be accounted for in these sections.

  • Effective January 1, 2021, the following government entities are now also eligible for the credit (this was not the case in 2020):

    • public colleges or universities
    • organizations whose principal purpose is providing medical or hospital care
    • certain federal instrumentalities, such as federal credit unions

  • In general the federal government, the governments of any State or political subdivision thereof, and any agency or instrumentality of those governments are not Eligible Employers and are not entitled to receive the Employee Retention Credit.

     

    In general, for employment tax purposes, the IRS considers six factors in determining whether an organization is an instrumentality:

     

    • Your organization is NOT used for a governmental purpose and NOR performs a governmental function;
    • Your organization DOES NOT perform a function on behalf of one or more States or political subdivisions;
    • Your organization has NO private interests involved, or NOR does the States or political subdivisions involved have the powers and interests of an owner;
    • The control and supervision of the organization IS NOT vested in a public authority or authorities;
    • IS THERE an express or implied statutory or other authority necessary for the creation and/or use of such an instrumentality AND whether such authority exists; and
    • Does your organization HAVE IT OWN financial autonomy
    • Does your organization PAY ITS OWN operating expenses.

     

    See Rev. Rul. 57-128, 1957-1 C.B. 311.  No one factor is determinative; instrumentality status is based on all the facts and circumstances. These same factors apply to identify an instrumentality for purposes of determining whether an employer is eligible for the Employee Retention Credit.

  • Currently, 573 sovereign tribal nations (variously called tribes, nations, bands, pueblos, communities, and Native villages) have a formal nation-to-nation relationship with the US government. These tribal governments are legally defined as “federally recognized tribes.” Two-hundred-and-twenty-nine of these tribal nations are located in Alaska; the remaining tribes are located in 35 other states.

     

    The term “Tribal entity” includes any Indian Tribe, tribal organization, Indian-controlled organization serving Indians, Native Hawaiian organization, or Alaska Native entity, as such terms are defined or used in section 166 of the Workforce Innovation and Opportunity Act ( 29 U.S.C. 3221 ).

  • You are seeing this because you have indicated that your business is classified as "Essential Business".

     

    The general rule for essential businesses is that they are not considered to have a full or partial suspension if the governmental order allows the employer’s operations to remain open as an "essential business."

     

    The exception is if, under the facts and circumstances, more than a nominal portion of their business operations were suspended by a governmental order a portion of your business may be evaluated for an ERC refund.  Please find below the link to the "Nominal Impact"  Survey.

     

    Evaluation of Nominal Impact- Essential Business

     

  • Because you indicated "Yes" to the question that either you or your partners/shareholders own multiple business together, we must determined of are any attributions rules that must be addressed.  Please completed the "Multiple Entity Ownership Worksheet by clicking the link below.

     

     Multiple Entity Ownership Worksheet

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