This is particularly important when it comes to claiming the ERC for clients based on the suspended operations test, which has many gray areas that require professionals to tread carefully.

Avoid firms who pre-qualify clients for the ERC

“You’ve pre-qualified to receive thousands from the ERC credit,” promises the ERC mill’s ad on TV, social media, and the radio–some of them even going as far as detailing a specific amount before reviewing any financial statements or circumstances.

In my experience, after encountering this kind of advertising, many clients are confused when you attempt to explain that they do not qualify based on either the gross receipts test or the suspended operations test. This messaging mismatch about the ERC is one of the biggest reasons why my firm has started creating content to educate people on the facts of the ERC.

Are they inaccurately interpreting suspended operations guidance?

While the gross receipts test for the ERC is fairly straightforward, the suspended operations test involves a lot of gray areas that require ethical, professional judgment.

When researching an ERC partner for your firm, be sure to avoid firms that promote the following misconceptions:

Operational adjustments Many firms attempt to claim the ERC for clients because of mask policies or other minor operational adjustments. However, for an operational adjustment to make your clients potentially eligible for the ERC, it must impact over 10% of your gross receipts or over 10% of your total service hours.

Occupational Safety and Health Administration (OHSA) guidelines Although OSHA’s advisory notices are being cited as the basis for many ERC claims, they are neither sufficient nor appropriate authority for the ERC. The COVID page of the OSHA website clearly states that OSHA guidance is informational in nature, which doesn't fulfill the government mandate requirement of IRC Section 3134. Also, the General Duty Clause—though it’s often used to claim the ERC—is based on a law created in 1970, not in response to COVID-19 as required in IRC Section 3134.

Centers for Disease Control and Prevention (CDC) guidelines Question 20 of IRS Notice 2021-20 distinguishes between two employers, one that temporarily closes down because of a direct government mandate and one that closes to follow CDC guidelines. It’s worth noting that only the first is listed as potentially eligible for the ERC. The second employer is described as merely “following CDC guidelines.”

Supplier shutdowns Question 12 of IRS Notice 2021-20 explains that if a business is unable to get “critical materials from its suppliers because they were required to suspend operations, the business would be considered an eligible employer.” While many ERC mills rush to qualify their clients for the ERC based on this excerpt, it’s worth noting that ERC eligibility depends on the client’s inability to find an alternative supplier. When claiming ERC for a client based on a supplier shutdown, choose an ERC firm partner who is diligent about documenting the client’s failed efforts to obtain an alternative supplier.

Choose prudence over big referral fees

As CPA Dan Chodan noted, people don’t like talking about fake ERC mills when they’re getting a referral check. Still, it’s critical to discuss and spread awareness about unscrupulous ERC professionals so we can protect our hard-earned reputation and trust with clients. AICPA Communication Manager, Kelly Mullins, recently discussed ERC referral fees in an episode of Ethically Speaking, highlighting the following considerations:

• When 941 returns are amended, you’ll need to revise and sign off on the client’s annual return. This includes indirectly approving the revenue calculations and documentation used to support the final ERC position. CPAs like myself must also be careful to maintain adherence to the Statements on Standards for Tax Services.

• Opportunistic ERC mills appeared overnight and can disappear just as quickly. This means you’ll be responsible for explaining and substantiating your client’s ERC position in the event of an IRS audit. If your ERC partner did inaccurate work, you could be held liable for their errors.

Birds of a feather flock or fall together

Taking time to vet your ERC partner will help you avoid an embarrassing connection to an unfavorable headline. Accountants are trusted business advisors, which means our clients rely on us to provide trustworthy solutions, which extends to our recommendations and network of partners.

I hope this article has helped you learn how to find the best ERC partner, or review your existing partnerships, so you can continue ensuring the continued success of your clients and your firm.