by David Horwedel, EA
Getting an ERC, if you truly qualify, can be a huge boon for you and your business. There can be a lot of money involved here.
Getting it, if you do not qualify, can be a disaster resulting in an IRS Audit and payback of the ERC with penalties and interest.
At Torchlight Tax, we sort out this qualification step with CERTAINTY.
Construction and real estate development firms may very well be eligible for the Employee Retention Credit (ERC OR ERTC). Many construction and real estate development firms were significantly impacted during the pandemic.
Employers can retroactively claim the ERC based on hardships experienced during 2020 and 2021.
Some construction and real estate development firms thought that they did not qualify for the ERC because they were essential workers, continued operations during the pandemic, and did not qualify by the Gross Receipts Test. They may very weill qualify safely by a rigorously done alternate test.
One of the construction firms we worked with thought they did not qualify because their Gross Receipts were generally up. We looked further, however, because they went through Hades during the COVID-19 Pandemic and almost gave up and closed down.
How did their gross receipts go up? One factor was their supply costs went way up, and this was reimbursed by the clients as part of their Gross Receipts.
The reason they had such a rough time is that their ability to delivery goods and services was reduced!! bBters, while their profits suffered.
With a potential of $26,000 per 2020-2021 employee, you should find out with certainty whether your firm qualifies for the ERC or not. Misinformation has been spread about the qualifications for this credit, resulting in some qualifying firms not applying for the credit, and some non-qualifying firms applying for and receiving the credit, thus setting themselves up for a future audit.
As a full-service tax firm, composed of EAs, CPAs, Tax Attorneys and support staff, Torchlight Tax can handle your entire ERC process in-house. The first and most important step is determining whether or not you qualify with CERTAINTY.
We recommend you read this entire blog, but if you want to skip ahead and call 1 (877) 758 7797, we will be glad to do a free consultation to see how much ERC you safely qualify for.
We would be glad to assist your firm in getting the maximum ERC that the firm qualifies for.
I will be frank. Some ERC firms are greedy, lazy or incompetent.
Some firms operate on the basis that everyone is eligible. They know full well that the IRS is likely to pay ERC funds if you had the requisite number of employees in 2020-2021. They can collect their commission from your ERC refund and disappear before the audit letters arrive.
They often say: “There is no risk as you do not have to pay our fee until you get your refund.” This is false. The risk is that you get a large refund, spend it, and then get wiped out when an IRS ERC Audit demands the refund back with fines and penalties.
One characteristic of many of these firms is they end off when they receive their fee, and they do not amend the necessary 2020 and 2021 tax returns or provide Audit Defense.
Other, more conservative firms can be over-cautious. They see what some of these ERC-only firms are doing and want no part of it. In their caution, they only use the easy-to-apply Gross Receipts Test.
Both of these firm types have something in common-They are not doing the study and hard work necessary to do the ERC correctly.
Some firms, like Torchlight Tax, do it right. Torchlight Tax includes CPAs, EAs, and Tax Attorneys who are experienced in tax and have done a thorough study of ERC law, IRS regulations, and IRS guidance on the ERC. Our product is the tax dollars we save you, or the refunds we get you, without cheating or putting you at risk.
Doing it right takes a lot of study and WORK.
I will shortly discuss some specific ways construction and real estate development firms can qualify for ERC.
Some of these tests can require MANY hours of work. The rewards are large enough to be more than worth the effort.
To find out how much ERC you qualify for contact Torchlight Tax at 1 (877) 758 7797 or email us at info@TorchlightTax.com.
We had a taxpayer contact us after watching one of my ERC videos. His CPA had determined he qualified for a small amount by the Gross Receipts test. In fact, using the alternate test he was eligible for hundreds of thousands of dollars more.
The Employee Retention Credit (ERC) is the last major COVID-19 relief program left.
The most shortchanged ERC test is the partial shutdown test. This test requires a greater than 10% reduction in your ability to deliver goods and services in a quarter resulting from Covid -19 governmental orders. This is often far easier to qualify for than a 20% (2020) or a 50 % (2021) drop needed for the Gross Receipts Test, compared to the corresponding 2019 quarters.
Many construction and real estate development firms qualify by this test when they do not qualify by Gross Receipts.
Orders creating qualifying partial suspensions were more common than many employers and tax practitioners realized. Employers and tax professionals often shortchange the analysis of how the ability to deliver goods and services was impeded.
The ERC has already awarded billions of dollars to a broad spectrum of employers, including those in the
construction and real estate industries.
Unlike the Paycheck Protection Program (PPP) loans, the ERC has never been limited by available federal funds, so any business that qualifies and applies can still file for ERC relief!
At Torchlight Tax, the steps in ERC application and delivery are seven-fold.
Step 1) We do an initial free consultation and analysis to determine if your firm meets ERC Qualifications.
To do this analysis, we will require:
- Gross Receipts by Quarter for 2019, 2020, and 2021.
- Copies of Payroll Tax Forms 941 filed with the IRS for 2020 & 2021.
- Quarterly payroll broken down by employee for each quarter in 2020 & 2021.
- Did your firm receive Payroll Protection Program (PPP) Funds? If so, When? How much? We will need your PPP Application forms.
- Were PPP loans forgiven? If so, we will need the SBA forgiveness applications and the SBA forgiveness letters.
- Did your firm provide health insurance? If so, we will need payroll summaries including this data for 2020 and 2021 by quarter and employee.
- A thorough ERC Eligibility Interview with a Torchlight Tax expert and the employer. This is the critical step of a proper ERC and may take some time.
Step 2) Next, we project your ERC refund amount and our projected fee. We explain to you EXACTLY how you qualify.
You do not have to take our word for it. What test you qualify by, and how you qualify are explained.
You should not have us apply for the ERC on your behalf unless you understand how you qualify. If you and we both are confident that you qualify, then:
Step 3) We file your amended 941 Tax Returns that generate your refund checks.
Step 4) You receive your refund checks, usually 3-12 months later.
Step 5) You pay our fee if not already done.
Step 6) We amend the required 2020 and 2021 annual business and personal tax returns.
Because the IRS paid back the money you deducted in wages, some of this wage expense you deducted in 2020-2021 is reduced, thus increasing your profit and taxes in these years, making these amendments necessary.
Step 7) We stand by you for 5 years of audit defense and respond rapidly and accurately to the IRS if you are audited.
With your help, we have already determined EXACTLY how you qualify and have written out our analysis. We are ready to substantiate your ERC Claim. Even if you are audited, it is not a big deal. Audits are only dangerous if the original return was done wrong.
There is a common misunderstanding among taxpayers and inadequately trained tax professionals.
They think the IRS gives them a refund after reviewing their tax return. This is false.
The IRS gives out a refund after receiving your tax return and, assuming there are no glaring errors that are flagged by the computer, issues a refund. They assume your tax return is correct.
Now, for usual tax filings, they have 3 years to audit your return and request a refund back. However, due to the concerns about possible ERC fraud, the IRS has FIVE years to audit you on the ERC. They are also adding on 87,000 additional IRS staff to increase their ability to collect taxes.
As a practical matter, if you had the requisite number of W2 employees and filed your 941Xs, the IRS will generally mail ERC refund checks as soon as the returns are processed.
The ERC can provide much-needed relief for firms striving to recover from the COVID-19 pandemic.
We at Torchlight Tax are offering a free consultation and analysis to see if your firm qualifies. This is crucial and must not be done in a brush-off manner.
ERC-only firms started popping up in 2020 and 2021. These firms ONLY do ERC. Many of these firms apply for the ERC without analyzing and substantiating how the employer qualifies. It is not enough to cite “social distancing” and “had to wear a mask” and “could not meet in person.” Some of these firms consider their job done once the refund is received and their fee paid, and do not amend required tax returns or do Audit Defense.
One can legitimately wonder whether they will exist after new ERC claims die out.
Torchlight Tax has been doing business and personal tax preparation, IRS Representation, and Audit, Lien, and Levy Defense long before the Covid-19 Pandemic hit. We will continue doing it long into the future.
What is an ERC-only firm going to do in a couple of years?
The IRS has even warned taxpayers about third Party Practitioners promising things too good to be true. See my video “IRS Issues Warning on ERC Submissions Using Unethical or Untrained Third Parties” which includes the verbatim IRS Warning and my analysis.
You can see this and other ERC Videos on the Torchlight Tax YouTube Channel and Website, in addition to ERC blog articles on the Website. We also have an ERC E-book and dozens of blog articles and videos on other tax topics.
You need a real tax firm for the ERC that takes all the necessary steps. You do not want one firm doing the 941Xs, another firm amending the 2020-2021 income tax returns, and a third firm doing your ERC Audit Defense for the five year after-filing audit window.
At Torchlight Tax, we want to do all the 941Xs that generate the ERC, amend all required annual income tax returns, and do any needed Audit Defense for the five-year audit window.
This way we are responsible for the whole cycle.
Some employers have decided it is too risky to apply for the ERC. This is based on the false idea that no one can really know if they qualify for the ERC or not. A better approach is to work with the tax experts at Torchlight Tax and together we can determine if you qualify for the ERC with certainty.
One firm, similar to yours, had been afraid to apply for the ERC because the firm’s CEO felt there was something wrong with ERC-only firms who were promising him “big money.” After we did a thorough consultation and analysis, he learned with certainty that he was eligible for a $450,000 ERC and applied.
The idea that the ERC is so complex that an owner, manager, or CEO cannot understand it is completely wrong.
Some ERC “experts” say they understand it, but you and your EA, CPA, or tax attorney do not. They think you should take their word that you qualify.
There are complexities and fine points in doing an ERC submission for many employees, but the qualification rules are not all that complex.
If the IRS audits you, you generally receive a letter:
“We reviewed your payroll tax return form 941X and you do not meet the qualifications for the ERC. If you agree with this, check the box that you agree with our determination and sign below. You will owe us your ERC refund plus fines and penalties.
If you disagree with this, please send us your response showing you how you are eligible for the ERC.”
You attempt to call your ERC firm–No answer.
This could be in 2024, 2025, 2026, 2027 . . .
At this point (or earlier), you can contact Torchlight Tax.
At Torchlight Tax, we do Audit Defense every day.
We are experts at determining if you qualify for the ERC or not on a quarter-by-quarter basis. Whether we have new clients applying for ERC, clients who want an ERC Review done, or ERC Audit Defense, all our clients are handled in the same way to determine eligibility. The only difference comes after an exhaustive analysis if you do not qualify. For those who are not qualified and have not already applied for the ERC, we do not apply and there is no fee. For those who did apply, we defend you in the best way possible to minimize the damage.
If you do not qualify by the Gross Receipts Test, there is a second independent test that you take.
The basic alternative test is:
If Covid-19 governmental orders (federal, state, and local) impacted your business to cause a greater than 10% reduction in your ability to deliver goods and services then you qualify. (This is the Partial Shutdown Test.)
If Covid-19 governmental orders (federal, state, and local) impacted your business by creating supply change disruptions that caused a greater than 10% reduction in your ability to deliver goods and services then you qualify.
Let us take construction and real estate development firms and review how Covid-19 Governmental Orders affected it.
- How much time did you have to spend cleaning and disinfecting at the start and end of the day or between jobs?
- Did governmental orders limit crew size?
- Were there supply change disruptions because of governmental orders?
- Did social distancing slow production?
- Was your sales process disrupted?
- How often did you test your staff for Covid-19? How much time was lost?
- Did your crew have to wait outside in social distancing lines to get needed supplies?
- Were any other modifications required that reduced your ability to deliver goods and services?If we can substantiate that Governmental
Covid-19 orders created a greater than ten percent reduction in the company’s ability to deliver goods and services for a quarter, then that quarter qualifies.
Once your qualifications are confirmed for all quarters, then we can calculate how much ERC you are eligible for.
There are some other ERC eligibility tests, and we will be glad to check these for you. However, the above covers 98% of all valid ERC claims.
Once again, this is Dave Horwedel at Torchlight Tax. We are happy to get you all the ERC you truly qualify for, or to tell you do not qualify and end off there.
If you have already applied for the ERC, and are concerned you may not qualify, we are happy to review your ERC and advise you on what to do.
If you are under IRS Audit, we are happy to defend you.
Remember, we are a full-service tax firm composed of EA, CPAS, Tax Attorneys and support staff. In addition to handling all ERC matters, we would be glad to service your personal and business tax needs in the years to come.
You can also read our tax blog at Torchlighttax.com or watch our videos on the Torchlight Tax YouTube Channel.
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