Employee Retention Credits May Necessitate Amendments

The Internal Revenue Service has changed the rules regarding the Employee Retention Credit (ERC) once again. The changes are described in Notice 2021 – 49.

It says that your 2020 income tax return must be amended to show the change if you claimed the ERC on an amended 941 in the 3rd or 4th Quarter of 2020. The following also applies.

1 – Whether you file your taxes on a cash or accrual basis, the notice says that you must amend.

2 – Whether you have received the money or not, the notice says that you must amend.

3 – The way that you’re supposed to show the credit on the amended return is not by picking up the income, but rather by reducing the payroll expense by the amount of the credit.

Does any of this sound ridiculous to you? Welcome to my world and have a nice day.

In fairness to the Service, all of this is brand new. We live in unprecedented times. I’m quite certain and sure that they are having difficulties coming up with the rules on all of this as we go along.

But forcing a cash basis taxpayer that only recognizes income when received to amend a return whether they’ve received the money or not, even if it’s received in a different tax period, is preposterous in the extreme.

Taking this to it’s logical conclusion, these amendments will create additional income on the amended 2020 returns. If there is an additional income tax due, they’ll also charge penalty and interest.

How is this in any way reasonable? It isn’t.

Tax law is an ever-changing and evolving discipline. Given it’s newness, none of this has gone through the tax court system yet. My presumption is that it will change, but we can’t count on that.

We may be forced to amend those returns. I’ll continue to write about this if changes occur.

Let me leave you with this.

Austria reinstituted a lockdown on all unvaccinated residents over the age of 12 a couple of days ago. Their C-19 case numbers have skyrocketed recently, necessitating this action.

Cook County’s seven day rolling average on new cases was 1,126 yesterday. One month ago it was at 684, and we haven’t even reached the coldest part of winter yet.

If you think they won’t again begin the process of shutting us down, you might be mistaken. What happens if it gets so bad that they start running out of ICU beds and ventilators?

Our elected officials seem dead set on keeping us open this time, but what happens if they don’t have a choice?

Be prepared. Be ready, no matter what happens. If they start this insanity again, what would you need to do?

Are there physical changes you would need to make to your place of business? How would your offerings change? What would you be forced to do about personnel?

Think it through and have your contingency plans in place. It’s the surprises in life that hurt the most.

We’re all going to get through this. Let’s get through it together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. Whether you need Employee Retention Credits, PPP Loan Forgiveness, Payroll Services, or Accounting and Tax Work, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
Accounting Solutions Ltd.


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