A common refrain I have heard recently from tax preparers is that they have clients who have claimed the Employee Retention Credit (“ERC”) and now need to amend their income tax returns. Normally, this would be fine, but in some instances, the tax preparer doubts the company’s qualifications for the credit, or worse, the tax preparer had already advised the client that they did not qualify for the credit. In this situation, the tax preparer is now being asked to amend and correct the income tax return to reflect the already filed payroll tax credit. This gives rise to the question of whether the tax preparer has a liability for the amended return.
According to a recent publication, the AICPA’s stance is that the tax preparer has a duty to review the ERC claim and determine whether there is a reasonable basis for the position. While the position taken on a return is ultimately the client’s responsibility, a prepared return may lead to an allegation that the preparer tacitly agreed with the position. This puts the tax preparer in a tough spot. The client has already claimed the credit and now needs to amend the income tax return. The tax preparer not only needs to review the credit claim and make a determination on a specialized topic but also inform the client whether the position is reasonable or not. If the tax preparer does not find that there is a reasonable basis for the claim, then they should inform the client in writing about the nature of the error, how to correct the error, and the potential consequences of not correcting it. Additionally, the tax preparer should not amend the return.
For most preparers, the Employee Retention Credit is an obscure area of the law that is … well, not helped by the number of changes to the program, both by Congress and by the Internal Revenue Service. The IRS issued multiple notices around the program, some providing guidance while others warning taxpayers about making improper claims. Each period of the credit needs to be evaluated based on the relevant law at the time and in light of the available guidance.
In order to properly evaluate a claim, a preparer needs to review not only the law around the ERC, the business operations of their client, the relevant government orders that impacted the client’s business, but also the documentation of the credit prepared by the ERC vendor. This is not a trivial task, especially during tax season. If you have concerns about an ERC claim made by your client, need assistance in evaluating the claim, or have questions about the credit, I am happy to help.