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In this episode of Practical Tax, tax attorneys Steve Moskowitz and Cliff Capdeville discuss the many ways to file for, and claim the Employee Retention Tax Credit for your business. In many cases, business owners feel like they won’t qualify for a litany of reasons, but they are often misinformed. Steve and Cliff are here to shed some light on the details of the Credit, and how Moskowitz LLP can help you file and claim. Listen to the podcast and learn more!
Episode Transcript
Intro:
You’re listening to the Practical Tax podcast with tax attorney Steve Moskowitz. The Practical Tax podcast is brought to you by Moskowitz LLP, a tax law firm.
Steve Moskowitz:
Hello, and welcome back to the Practical Tax Podcast. I’m your host Steve Moskowitz, Senior Partner at Moskowitz LLP. Today, I’m joined by the Managing Attorney of Moskowitz LLP, Cliff Capdevielle. Our topic today is why so many business owners have completely failed to take advantage of the billions of dollars the government’s made available to business owners with the Employee Retention Credit, ERC. And how you can get your share of this massive of government giveaway before it’s too late. But before we jump in, a little bit about Cliff. Like I said, he’s the Managing Attorney at Moskowitz LLP, a leading law firm, laser focused on tax planning and tax controversies. A tax attorney with more than 25 years experience helping business owners and investors save money on their taxes. He hails from the California Bay Area, Go Bears! And now leads our entire remote team around the world. Cliff, welcome to the show. Let’s first define the Employee Retention Credit or ERC.
Cliff Capdevielle:
Steve, the Employee Retention Tax Credit is a refundable credit, for employers who are keeping their staff during the pandemic. This is a credit that’s available to all employers including employers who took advantage of the Paycheck Protection Program, the PPP. And, today I hope we can straighten out some common misconceptions and help all of those businesses that have yet to take advantage of this credit, to do so. Thanks for having me, Steve.
Steve Moskowitz:
It’s a pleasure. Cliff, can you tell us the difference between a refundable credit and a non-refundable credit?
Cliff Capdevielle:
Sure, very easy. Refundable credit is money in your pocket. So with the Employee Retention Tax Credit, businesses are receiving a refund check in the mail just like you do with your income tax refund. You can cash it, you can spend it however you want. If you wanna increase staff, if you wanna buy equipment, if you want to go on a vacation. Like I hear, you’re on your way to a vacation next week.
Steve Moskowitz:
A working vacation Cliff ’cause I’m always there for our clients.
Cliff Capdevielle:
Absolutely
Steve Moskowitz:
So Cliff, tell me, this ERC, is this something that we’d ever have to pay back?
Cliff Capdevielle:
You don’t have to pay it back. It’s not a loan. It is a refund, just like your tax refund. You can keep it and spend it, and never worry about paying it back. And you don’t have to use that money in any particular way. You don’t have to use it on payrolls or any other particular purpose.
Steve Moskowitz:
Do I have to do something to ask forgiveness like I did with PPP?
Cliff Capdevielle:
You don’t, this is a credit just for keeping your staff on payroll during this pandemic. And it’s in addition to the PPP. So a lot of people call us every day, they’re worried they’re not gonna qualify for the Employee Retention Tax Credit because they already took PPP money. That’s not true. You can get both.
Steve Moskowitz:
Is that a change in law, Cliff? Does it used to be that you couldn’t get both?
Cliff Capdevielle:
It is exactly, well, now 2020, you could not in some months get both PPP loan and the Employee Retention Tax Credit. Starting in the fourth quarter of 2020, the law changed and now eligible employers are allowed to get both the PPP and the ERTC where retention tax credit in the same quarter. And, that’s a great, been a great help to a lot of clients.
Steve Moskowitz:
So Cliff, this credit, is it a credit or does the government actually write me a check?
Cliff Capdevielle:
You actually get a check. You’ll actually put money in your pocket. It’s a refund check. Just like your income tax refund it’ll come in the mail and you can spend it however you like.
Steve Moskowitz:
And how much is it possible to get?
Cliff Capdevielle:
It’s actually unlimited. The only barrier is the amount of your payroll. So even large employers are eligible. We’ve had clients get over a million bucks refunds and it’s been a great help to those clients.
Steve Moskowitz:
And how much would I get? What’s the maximum I can get per employee?
Cliff Capdevielle:
It differs from year to year. So for 2020, the maximum was $5,000 per each employee for the year. In 2021 that was increased all the way up to $21,000 per employee. So it’s been a great help.
Steve Moskowitz:
So that means it’s potential that I get up to $26,000 per qualified employee.
Cliff Capdevielle:
That’s correct. That’s per employee, not per business, not per employer, that is for each and every employee potential refund of $26,000.
Steve Moskowitz:
So does that mean if the employer had 10 qualified employees they get up to $260,000 over a quarter of a million bucks?
Cliff Capdevielle:
That’s absolutely correct. And we’ve helped many many clients at this point get that much and more.
Steve Moskowitz:
And 20 qualified employees over a half a million bucks and so on?
Cliff Capdevielle:
Absolutely.
Steve Moskowitz:
That is fantastic. So tell me Cliff, why shouldn’t some employer who say, uses a payroll company go to the payroll company and say, hey, payroll company, you have my payroll record just go ahead and do this for me. Why not do that?
Cliff Capdevielle:
They’re not doing it first of all, second, there really isn’t any off the shelf software or any easy way way to do these calculations. You really need a tax attorney to carefully review the law in your particular case with regard to the governmental restrictions and your partial suspension issues in addition to accounting. So there’s the accounting piece to to see if you qualify based on the numbers, but there’s also the legal part. And that’s where we have particular expertise because we are familiar with the laws and we’re attorneys, we know how to interpret these government regulations.
Steve Moskowitz:
Cliff, let’s go back to the payroll companies. Has it been your experience that the payroll companies that offer this will just do the very last part, the amended return but they leave 99% of the work up to the company if you use the payroll company? What’s that all about?
Cliff Capdevielle:
Steve if you’re lucky, if you’re very lucky, they will prepare the form for you. Most payroll companies aren’t doing that. And your local CPA is probably not gonna do that for you, and they absolutely will not do the calculation and there’s no way that they’re going to do the legal research necessary to maximize this credit for you.
Steve Moskowitz:
So Cliff, why aren’t the CPAs interested in doing this for their clients?
Cliff Capdevielle:
Well Steve, there’s no off the shelf software. It’s not simple. The law keeps changing, and this is what really frustrates accountants. As you know, you worked with accountants, your whole career you know that they very much-
Steve Moskowitz:
Not to mention I was a CPA before I was a tax attorney.
Cliff Capdevielle:
Absolutely, and as you know, the accountants are very careful and they like to understand the rules before they do anything. The problem in our case is the government’s changing the rules as we go. So this has made CPAs very uncomfortable, and a lot of them are reluctant to do it even for with their own clients. So we have many many people call us who have CPAs, who have good CPAs, and they’re hearing from their CPAs that CPAs don’t wanna touch this. It’s too complicated. There’s too much legal research involved and they just don’t wanna do it.
Steve Moskowitz:
So Cliff, how do we qualify for ERC?
Cliff Capdevielle:
There are a couple ways to qualify. One is on the numbers. So if your receipts, your gross receipts per quarter are down significantly when you compare that to 2019, which is the base year for the calculations.
Steve Moskowitz:
How much is significantly down? What’s the number?
Cliff Capdevielle:
Yeah, significantly down depends, and if we’re talking about tax year 2020, all four quarters, that you’re gonna need to show per quarter a decline in gross receipts of 50% versus 2019 in order to meet the safe harbor qualification for the four quarters in, sorry. For the first three quarters of 2021 you need to show a decline grocery seats of at least 20% versus the same quarter in 2019.
Steve Moskowitz:
Well that’s terrific because 2021 seems like it’s a lot easier to get because first of all, we only have to be down 20% as opposed to 50% but also 2021 we can get up to 21,000 as opposed to 5,000 in 2020. So if we go ahead and we qualify on the numbers, no brainer, but suppose we don’t, is there any other way to get ERC?
Cliff Capdevielle:
Absolutely, so if you were partially suspended and this was where it gets tricky, then you also qualify. So partial suspension means, that there’s been a more than nominal change in your business, in other words, you have had restrictions because of government orders or regulations that limit the amount of business that you can do. For example, a restaurant. If a restaurant is not allowed indoor service or a restaurant has a restriction on the number of tables, those kind of restrictions constitute a partial suspension and would therefore qualify that employer for the credit.
Steve Moskowitz:
So you mean for example, a restaurant that was limited to using their dining facility up to a max of 25% of their capacity would qualify?
Cliff Capdevielle:
Absolutely. A lot of restaurants are not set up for delivery or outdoor service, and their business has been dramatically impacted, and that partial suspension is likely to qualify those restaurants.
Steve Moskowitz:
And that would apply to a lot of businesses. If you have a business like a store or a showroom, did the 25% capacity rules apply to them?
Cliff Capdevielle:
Yeah, absolutely. Retail shops, we’ve had convenience stores that have been affected by city curfews. We’ve had limitations on the amount of space or the number of people that can be inside a shop or a facility at any one time. Those, sort of restrictions would likely qualify as well, as partial suspensions.
Steve Moskowitz:
So that’s an awful lot of potential taxpayers here. You’re talking about restaurants and an awful lot of businesses have a store or a storefront where people would enter and if they can only enter a 25% that’s an awful lot of companies.
Cliff Capdevielle:
Many, many, many companies qualify. And the shame here Steve, is a lot of companies qualify and they’re not taking advantage of it. And, we get calls every day. People say, oh, my CPA said I’m not gonna qualify or my receipts weren’t down 50%, or I wasn’t closed, so I don’t think I’ll qualify. And, really, they’re leaving a lot of money on the table.
Steve Moskowitz:
Well that’s what I found too when talking with clients and in no way, shape, or form would I ever disparage a CPA but an awful lot of them just do the numbers test. If the numbers test doesn’t work, that’s it, they say no, but this capacity covers so many people.
Do we find anything about representing dentists?
Cliff Capdevielle:
Yeah, dentists are an interesting case. They’ve been regulated, because of the pandemic. For example, many dentists use high speed drills as part of many procedures. The CDC has warned that the use of high speed drills potentially could increase the aerosolization in the amount of virus in the air. As a result of using those drills they’ve recommended against it. And that’s limited to dentist practice.
Steve Moskowitz:
To go ahead, and look at the creativity here, I’m gonna use a technical term. So hopefully our listeners can put up with it. There’s another area where the CDC was concerned that the companies would stir up the COVID terms and they had to make a change. What if you had a janitorial company, anything special there, Cliff?
Cliff Capdevielle:
We did have a janitorial company consult with us and, one interesting thing we found is that, they have been limited in the use of brooms in many facilities, because the broom tends to do something similar to the the high speed drill. It tends to push the virus back up into the air, off the floor. And so the CDC has recommended many instances. The use of a mop instead of a broom, and that obviously can add significant time to janitorial work.
Steve Moskowitz:
See, folks, Cliff is very modest but he’s talking about a case where a janitorial company come in, I’ll call them X, the X company, and the X company CPA told ’em in no way, shape, or form do they qualify because he didn’t take a look at what the restrictions were and Cliff went and found the CDC restrictions. That’s a whole new world. And one of the things I would like our listeners to take away here, is there’s two ways to calculate if you’re entitled to or not. One is, I’ll call the easy way. Cut and dried numbers, something’s either more or less than 20%. That’s easy, math is math, but this subjective area is such a big area if you’ve had restrictions put on you. That’s something you should carefully look at to see if they qualify, and that’s one of the things that we do for you is help you determine, did you have a restriction that would qualify? Because, you can get tremendous amount of money here. I realize people’s facts, circumstances and results can differ. We’ve had clients who’ve literally gotten millions of dollars from this, on down to much smaller amounts. But even, for a small company getting a few $100,000 is a big deal, to most people, on them. So this is really, really important. Now, what about these changing rules Cliff? What’s going on here?
Cliff Capdevielle:
Well Steve, it’s been one of the most frustrating parts of the pandemic and businesses trying to operate in the pandemic is that the government including the IRS, keeps changing the rules. So we’ve seen multiple rule changes from the beginning of this program to date. Believe it or not, the last major set of rule changes came in August of 2021 for a program that only extended through September, 2021. So it was in place for almost two years and it wasn’t until the last months of the program that they actually finalized a lot of rules. So it’s been very frustrating for many clients.
Steve Moskowitz:
Kinda like a football game where the ref says, go out and play and I’ll let you know what the rules are as we go along, I’m still working on.
Cliff Capdevielle:
Absolutely, and Steve I think, it’s one reason why a lot of companies are turning to tax attorneys instead of their CPAs to deal with this because it is really, potentially challenging area for CPAs. The amount of changes to the law during the last two years.
Steve Moskowitz:
That’s been my experience too. And again, because I was a CPA before I was a tax attorney, I understand the difference in thinking between the typical CPA and the typical tax attorney there’s a real difference and that difference really, really favors the clients going to a tax attorney so we understand that. Now, what happens if a client comes in and says, I get PPP and I knew you told me that the law changed ’cause it used to be, you have to choose one or the other so I can have both. How do we figure out when we have the payroll and we have PPP? How do we figure out the calculation here?
Cliff Capdevielle:
Well Steve, it’s relatively simple in principle. There is some twists and turns with regard to the calculation. The basic idea, is that you can’t double dip. So if you took money from a PPP loan and that loan was forgiven, you’re not entitled to a credit for that same money. So if you took 100,000 and you used it in the second quarter of 2021 to make payroll, and you had another 100,000 of your own money that you used to make payroll that quarter, then the maximum you’re entitled to is the $100,000 that came out of your pocket.
Steve Moskowitz:
So Cliff, it seems where you’re really performing essential service is putting those numbers together because if you had a situation where let’s say the X company had an employee who was paid $10,000 in that quarter, and 1,000 of it came from PPP, you’d still get 70% of the remaining 9,000 or $6,300. That’s what I think an awful lot of people miss where they confuse and they think whether it’s not, and that’s where your accounting background becomes so important because you have to go through the numbers and say, well wait a minute, yeah you had both, but I’m assigning this PPP amount to John Smith and this to Mary Jones, and getting the maximum legal benefit for the client. Is that right?
Cliff Capdevielle:
Absolutely, and this is why it’s so important that you have a team of accountants and attorneys on these projects. They are very complicated at accounting projects but there’s also quite a bit of legal research that goes into these projects.
Steve Moskowitz:
So basically it sounds like you have the beautiful combination because we have the accountants crunching the numbers and the lawyers saying, here’s why you’re entitled to get this.
Cliff Capdevielle:
That’s exactly right. And this is not something that you can do on your own. There’s no software that you can buy off the shelf. There’s no TurboTax equivalent. These are calculations that we do. We do our own calculations for each employer, and we do our own legal analysis for each employer. There’s nothing off the shelf about these projects.
Steve Moskowitz:
So it seems to me, that is really the big deal here because you wanna go ahead and get the maximum benefit. That’s where I’ve seen so many clients that I’ve talked to thinking they don’t qualify, and they do. Now, what about if we have a corporation that has one employee, the owner of the corporation, can he or she get ERC?
Cliff Capdevielle:
Now that depends. If there are no other relatives on the payroll and, there aren’t any other attribution issues then in some cases those owner employers who are also on the payroll as employees can qualify for their own wages.
Steve Moskowitz:
So how many hours a week or a month or a year do employees have to work to count for this?
Cliff Capdevielle:
Any, so there’s no requirement that the employers only use their, full-time employees. Part-time employees qualify and, in any combination. You can have half full-time, half part-time, they’re all gonna qualify up to that $26,000 limit.
Steve Moskowitz:
And I just wanna clarify, when the government writes the cheque, the cheque is to the employer, is that correct?
Cliff Capdevielle:
That’s correct.
Steve Moskowitz:
Now, we’re getting ready to wrap soon. Is there anything that you’d like to tell the listeners before we thank everybody for listening?
Cliff Capdevielle:
Well, I just want to reinforce what you said Steve which is, you’ve seen a lot of clients and others call you and, mistakenly believe that they don’t qualify when they really do. So there’s a lot to this. You should not assume that you’re not gonna qualify. You should not assume because your in-house accountant or your CPA told you that you’re not gonna qualify that that’s the case. These laws are changing rapidly. There’ve been numerous changes since the beginning of this program two years ago, and it’s, we find over and over again, that business owners who thought they didn’t qualify actually do.
Steve Moskowitz:
Cliff, that’s something I’d really like to emphasize ’cause I talk to people all day long about this, and here’s what’s the crying shame of this.
Because I’m on the radio I get a lot of people calling me about a lot of things. And whenever a new person calls me, I always ask ’em about this, the ERC. And Cliff, you’d be, oh, you probably wouldn’t be amazed you would understand that how many people say, oh no, I don’t qualify, and I’ll ask ’em well, why is that? And they’ll either tell me, well my CPA told me I don’t qualify, or one of my personal favorites is Dr. Google said that I don’t qualify. And what happens is they’re reading ’cause once you post something to Google it can stay up there, and what I found is there’s a lot of old information where people are actually setting, oh no, I have PPP and that’s why I can’t have this. I say, no, no, that law changed. There’s so much misinformation about that. But so many people have come to our office that we’ve gotten ERC, but they came for something else they thought they determined they weren’t entitled to and so far, we’ve had some people that literally were entitled to millions of dollars, who thought they didn’t qualify and if they hadn’t called me for something else by chance, they would’ve missed that.
That’s what I’m encouraging all our listeners to focus on. If you have a business, if you employ somebody, just call us, there’s a very simple test. We can tell you right over the phone if you qualify. and if you do, let’s go ahead and get, and forgive the slang term I’m using, the free money from the government. And some people ask me, well why should there be such a thing? Why is the government giving this money away? And I said, it’s simple. The government economists have figured out that if they let small businesses die and Lord knows how many have already gone out, that we could have a horrible depression and the government wants to avoid that depression by helping small businesses stay afloat. That’s why you have this. This is a program designed by the government to help people. They’re giving the money away and what I’d say is, if you qualify and an awful lot of people do, let’s get our free money.
And on that happy note, I’d like to thank everybody for listening to us and encourage you keep checking back for Practical Tax where we’ll tell you all about tax, our favorite subject in the world and the reason it is we can show you how you can legally save all this money, and if you doubt it, look at the newspaper when you look at the Fortune 500 making billions in profits, and not paying taxes because they take advantage of all the different tax laws. But what happens with most people, they don’t know about ’em ’cause they’re so hidden in the tax law. Talk to us, let us tell you what applies, and let’s save that money. Thanks to all, see you next time.
Outro:
You’ve been listening to the Practical Tax podcast with tax attorney Steve Moskowitz. To hear more podcasts, go to moskowitzllp.com/practical-tax The information contained in this podcast is based on information available as obtained at the date of its release. Moskowitz LLP and its affiliates are under no obligation to update this information as changes occur. Applying this information to your specific situation requires careful consideration of all factors which may be applicable. And any information is not to be considered tax advice or legal advice. Further, this is attorney advertising, and the facts and circumstances displayed in this case are dependent entirely on the facts of that particular case. Please consult your tax advisor before acting on any matters discussed.