Dealers Should Be Wary of Aggressive Claims Relating to Employee Retention Tax Credits

By: Andrew G. Thomas

Every prudent business entity has been meticulously following and researching the various government programs providing benefits as a result of this pandemic. One such benefit comes in the form of Employee Retention Tax Credits (ERTCs) under the CARES Act. This is a refundable tax credit against certain employment taxes, and to qualify a business must experience either: (1) the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel or group meetings due to COVID-19, or (2) a significant decline in gross receipts. Determining qualification under these tests is rather difficult, and while the IRS has released some guidelines on how to assess whether a business qualifies for ERTCs, reasonable minds may still differ on the end result.

While various governmental orders impacted many businesses, the effects of such orders vary drastically based on a variety of factors, including the location of the business and the type of industry. Certain industries were more heavily impacted by the pandemic (and more importantly, the corresponding governmental orders) than others, and these are the businesses that the ERTCs are intended to benefit. However, some consultants are advancing a narrative that nearly every business qualifies for ERTC. This is a very aggressive reading of the rules and regulations, is contrary to a plain reading of relevant IRS guidance, and is simply not true. Determining whether a business qualifies is a complex process based on factors which must be considered on a case-by-case basis.

As we are all aware, some types of essential businesses were also largely unaffected by governmental orders. This is particularly true for essential businesses that did not have to reduce hours, consumer capacity, and whose business practices and supply chains were otherwise unaffected. Some automotive dealers may fall into this group, and as a result, should be extra wary of aggressive claims or qualification “analyses” from consultants. This is not to say that automotive dealers as a whole do not qualify for these credits – any Dealer that experienced a temporary complete or partial shutdown, or had substantial inventory supply issues may likely qualify for these credits. However, any prudent business should identify and mitigate potential risks.

Further, these consultants typically take a commission or contingency fee based on what they estimate your credit to be, so while they may advertise as trying to help your business they have a clear personal motive to be aggressive in their interpretations and analyses. Red flags to be cognizant of include: failure to ask for detailed accountings of any change in business practice, interruption, or impact caused by government orders; “approval” prior to a thorough review of all of the pertinent information relating to qualification; “approval” based on information that looks generalized or not specifically based on your business; and consultants claiming that any regulations or government issued guidance on ERTC are incorrect. Before signing any contract for ERTC assistance, dealers should also contact their CPA.