Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Roger Harris: [00:00:07] Well, hello everybody. Welcome to another Federal Tax Updates podcast. It's Roger Harris and Annie Schwab. Hey, Annie.

Annie Schwab: [00:00:15] Hey, Roger, How are you doing today?

Roger Harris: [00:00:17] I'm great. I am terrific in taxes and over. So what are we going to talk about? Everybody. Everybody on vacation. Nobody has to work anymore till next maybe close to October. Everything.

Annie Schwab: [00:00:27] That would be nice. I mean, I guess you could say the first deadline has passed, but I'm not sure tax season itself that you can call it over and done. There's always going to be some lingering things, but we have a couple of unique situations that we probably need to talk about today.

Roger Harris: [00:00:42] So the idea that once the pandemic ended and COVID was over that tax seasons would be easy, that's not true.

Annie Schwab: [00:00:50] Back to the norm. I think we are more normal, more of a traditional type of tax season. But no, it's definitely not over. Not over. Not over.

Roger Harris: [00:01:02] No. All right. Well, now that you've busted my bubble and my excitement, what what are we supposed to be doing.

Annie Schwab: [00:01:09] Once you come back from a short vacation? There are some some typical things that happen after tax season, for example, extensions. You know that you always have those returns that you put on extension that you need to now deal with. And then this year, I think we had 11 or 12 states that actually got extended some May, some June, some July due to natural disasters, natural disasters, excuse me. So you've got, you know, maybe some states or some clients in those states that you also just need to go ahead and prepare or even extend those returns if necessary. And then there's always the amended 1099 or amended W-2s or corrected forms from a brokerage house or something like that that will come in, that will cause you to revisit a tax return, possibly amend a tax return. And lastly, another I would say another typical thing would be, you know, the matching notices, the adjustment letters, generally fairly easy to respond to, to make the correction, but it is something that you need to address. Talk to your clients about, take care of. So taking off after April 18th and returning in early October is probably not ideal. Probably not.

Roger Harris: [00:02:20] Well, and then there's the classic one. That's all everybody's favorite. When the client walks in in May and says, Oh, I forgot to give you this.

Annie Schwab: [00:02:28] That happens too. It happens.

Roger Harris: [00:02:30] That's everybody's favorite because, yeah, it's not your fault. It's the client's fault. But the client thinks you should have somehow known that was missing. Yeah, well, so. And then this year.

Annie Schwab: [00:02:40] Roger, there's. Yeah, you got to do, you got to do all that. But on top of that, this year we still have the IRC this tax season. Irc is still around. I know COVID is past, but the employee retention credit is still something that tax practitioners and tax payers need to address and unfortunately it's going to cause a little bit of a headache.

Roger Harris: [00:03:02] Yeah, I'm sure you're tired of us talking about it at every podcast and actually we're tired of talking about it on every podcast, but it seems like every couple of weeks something new pops up or new problem new information. And there's another issue regarding the IRC that we need to to talk about. I think what kind of triggered us talking about it today was a couple of things. First of all, the TV and radio ads are still everywhere. I mean, they're just constant phone calls too. I'm getting calls and even mailing. I mean, our firm got a thing in the mail saying, here's your payroll, here's how much you're eligible for. Well, they don't know either of those two numbers, but that's a you can imagine how it would pique somebody's interest if they got that. But maybe the thing that surprised me, I was on a call last week with the Internal Revenue Service. It's a call we do monthly and kind of get briefed on the what the world looks like from the IRS perspective. And I think what surprised me is one of the comments that was made was that the IRS is still processing 50,000 IRC claims a month. So no, a week. I mean a week. I'm sorry. Yes. A week. Yes. A week.

Annie Schwab: [00:04:15] A week. Yeah. 50,000 a week. That is crazy. It has to be the result of all these emails. I mean I'm guessing, I mean most of our office owners, you know, prepared the claims in the beginning, but that's still a lot of processing, a lot of claims outstanding.

Roger Harris: [00:04:31] And that says a couple of things. Obviously, it's still active, It's still going on. There's still an opportunity for you if you have clients that are eligible to to still go through the process with your clients. And I'm going to advise you, I think one of the things that a lot of practitioners thought was if they just don't do IRC claims, they can forget about it, they don't have to worry about it. But now and we'll talk a little bit more about it going forward, they're faced with a different problem because they didn't do the claim they're having to deal with the client who went somewhere else to have the claim done. And if they question whether the claim was. Entitled to be made at all or the amount or whatever. Now they're having to deal with it kind of after the fact, when they probably would have been better off to just have done it themselves, not themselves. So if you are still. Out there with small business clients that are eligible. I think it's going to be better for you to go ahead and do it and get paid for it than to wait for some third party to do it. And then they come back to you and you're kind of caught. Well, now what? Because I have issues. And because of all that, Danny and I are going to kind of go back in time and talk about some of the stuff that came out early on, because even if you didn't do them, now, you're faced with knowing the rules because you're having to make a judgment as to whether or not they were done properly or not. So we're going to kind of go back and spend some time. That's not all we're going to talk about, but we hope one of these days we can do a podcast and never mention IRC or anything that starts with those letters. But yeah, we're not there yet.

Annie Schwab: [00:06:03] We're not, we're not there yet. And in fact, nearly every podcast that we've done, even from the beginning, are tax season kickoff podcast. Irc was a large part of it and it's because it it even though covid's over it impacted this tax season, clients came to you that maybe could have qualified or do qualify and they need help with the claims. The money is still there. It's not a limited amount of funds and there's still time to file for it. Or like Roger said, somebody went to a mill and now they're coming to you to help with the amended returns and you're trying to decide, Can I do this? Is it a legitimate claim? And if it's not, what are you supposed to do? What do you tell the client? What do you have to tell the IRS about it? I mean, it gets very complex and. You know, in the two years the rules related to this are complicated. And so I think some of the mills are taking advantage of the complexity and.

Roger Harris: [00:06:54] Yeah, and the dollars are big. We're not talking about $500 claim here. Many instances we're talking 50,000 500,000. So the dollars are huge and therefore the risk or liability or whatever you want to call it for it being done improperly or pretty significant. So where do you want to start? Let's let's go back kind of through this and then we'll eventually talk about where we are today and some maybe some. Comments and updates on that.

Annie Schwab: [00:07:21] Yeah. So let me let's start with a couple of the basics. So. The IRC, The employer retention credit is the claim is made by filing the payroll tax returns. Right. And then the entity returned. The business return would then need to be corrected because you have to amend the year in which the credit was generated. So even if it took the IRS a while, I mean, we had lots and lots of office owners, Where's the money? Where's the money? Where's the money? So even though, let's say you didn't get the money until 2021, you have to go back, even if you're a cash basis taxpayer back to 22. Amend those returns and that's the entity or the business return. And then obviously, if it's a flow through entity, then you would need the amended K-1 da da da da da da. And so here goes the cycle of chasing down information and that kind of stuff. And recently the IRS has been made aware and has noted that, you know, if these clients go to a mill. The mill takes some money, it's not free. So if they generate a credit, let's say, I don't know, $10,000, then they take 20% of that. So the client only gets 8000. Well, if they come to you and they realize, well, this claim was not valid, they don't even have the money to pay it all back. They only got 8000. And I'm sure the mills are now hiding. Well, so I know, Roger, you were on a call and the IRS is aware of it. But what do you what do you do? I mean.

Roger Harris: [00:08:59] Yeah. And if it was just 8 to 10, that would be maybe a solution. But if you're talking 300,000 versus got to 50, you can imagine the problem. But let me go back to something you mentioned earlier, because it's a problem that, again, we may be insulting your intelligence by talking about it, but you made an important point that the law requires these amended returns even as a cash basis taxpayer. You can't include those credits in income in the year you receive them. So you may have someone coming to you next year who did it that way. They put it in income and now that too, you're going to be faced with that problem because that's not the proper treatment. You've got to go back to the year the wages were paid that generated the credits and amend the 941 initially and then amend the individual or business return. So you've got that problem to deal with. Now, that one's pretty straightforward. They just handled it improperly, the claims, okay, but they put it in income in the year received instead of amending the return. That one, if you see that one would probably be a bigger problem next year, I would think, than this year. That one's easy. But the problem you just referenced, which is can be serious, is they come to you. You didn't do the IRC, they went to a mill. They were eligible for 300,000. They only got say 250 because the mill took 50 of it. And it's clear to you that they shouldn't have gotten anything, much less 250 or 300. The correct answer was zero. What do you do? What's your responsibilities? Where does your liability stand? Where does your risk stand? So I guess first thing, Annie, the question is how do you know it's wrong?

Annie Schwab: [00:10:47] And well, you got to be familiar with the rules, right? I mean, there's there's a there's sort of a like, you know, if you're a one person shop and clearly you didn't qualify those wages. I mean, there's some that are going to be easier than others to determine and some are going to be you know, the calculation was done incorrectly. The the did the wages qualify? Were these wages? I mean, here's a simple one. You got a PPP loan, right? If you use the same earmarked the same wages for PPP that you're using to calculate the credit for IRC. Well, that's wrong. You can't do that. There's no double dipping. That's you know that. There you go. That's that answer. But if you're if your client is falling into one of the grayer areas, you know, supply chain interruption or something like that or you know it's going to be hard. You're going to have to dig deep into the numbers and into the records to make sure that it's accurate.

Roger Harris: [00:11:40] And I think the service is expecting us to dig deep because yeah, and we've said this on an earlier podcast, so this is nothing new here. The service issued some guidance. It was in March, I think it wasn't that long ago that said, if you believe that claim is wrong, you should not amend the returns because you are perpetuating a false claim. So how do you know that without digging into the claim in great detail to determine A did they qualify under? And we'll cover the rules. We'll remind you of the rules in a minute. But did they qualify under the rules? And even if they did, was the calculation done properly? And here's another situation where. There's going to be, I think, potential mass problems. When we applied for PPP loans, if you remember, we had a certain amount of the money that had to go for wages to get full forgiveness, and in many instances they could get full forgiveness by sticking a number. On the wage line that was greater than they needed. But it was just easier. You know, I could put $60,000 of wages and $40,000 of utilities and get it, but it's easier just to put 100,000 on wages. Well, now you're trying to do the PPP excuse me, you're trying to do the IRC and you realize you can't use the wages for both. So you go, Well, I only needed 60, so I'm going to use 60. Well, that's not right because you put 100 on the application, you're stuck with the 100. I don't know how many people knew that. So it may not be that the claim is completely erroneous, but there's $40,000 of wages that the IRC mill said were qualifying wages that are not. So there's going to be all kinds of potential issues. But how do you know that without redoing it?

Annie Schwab: [00:13:34] Exactly, you're going to have to dig deep into the the documents and redo it and there's no way to amend A PPP. So if you if the 60 over 40 split would have been just fine, but you put the 100 in wages, it's not like you can go change that and then pull the other stuff to Yearsee you're kind of stuck, you're stuck. Whatever happened with it?

Roger Harris: [00:13:52] Yeah, whatever you put on that line. Except that and correct me if I'm wrong, Annie, if I needed 100, my PPP loan was 100, so I put a 150 on that line. Oh, I could still take the 50 because I didn't need it, but I'm stuck with the 100.

Annie Schwab: [00:14:10] You're stuck with the 100. You can still take the 50. And if you you know, when it gets down to the nitty gritty and you're listing all the employees and their wages, you can even handpick which ones can go to IRC because not everybody's wages qualify for IRC. So some some could be in both buckets and some just in IRC. So you'd want to scoot the ones to IRC and save the other ones for the PPP. But again this is all after the fact. So yeah.

Roger Harris: [00:14:37] You're stuck with the numbers, but you do have some because remember you never told them on the PPP loan whose wages you were using. You just put a number there employee.

Annie Schwab: [00:14:45] A, B or C or whoever.

Roger Harris: [00:14:46] So you have some flexibility, but you are stuck by certain things, but you do have flexibility. So we can offer a real service to our clients. But it really was better if we did the spend all that time doing the claim and getting paid for it, then just doing a calculation or a review to determine whether or not he can file the stupid return for them. Because you may do all this work and have to go to the client and say, You know what, I can't help you with your amended returns so you don't even get paid for that. So that's maybe one bit of advice, you know, that I would would offer to people. If someone comes to you with a PPP loan, I mean not excuse me, an IRC credits claim and you didn't prepare the IRC claim and you can't tell immediately whether they're eligible or not, then I think you need to charge for the research and the time you're going to spend just to determine whether or not you can prepare the return because you may not get the opportunity to build them for the return depending on what your research on the claim actually says.

Annie Schwab: [00:15:51] So well, and it's a bad place for the tax preparer because if you think it's wrong or have a reason to believe so, then you say, okay, I'm sorry, we either have to send all the money back or I can't do it. Well, they'll just maybe go to the next one down the street. So then you lose a cloud. They walk in there, they say the same thing. Well, eventually they're going to find somebody that's just going to do it. So it's it's really put the tax practitioners at a disadvantage and it's confusing to the clients, to the taxpayers. You know, they hear all this stuff on TV and the radio and they get the phone call and their friend down the street did it. And, you know, it's all over the place. And unfortunately, they're being misled and and having to deal with the consequences. And so are the tax practitioners.

Roger Harris: [00:16:33] Yeah. And we've seen in our company and this this is human nature. I'm not shocked by it, where a client came to one of our offices and said, Hey, I hear about this great IRC thing. And they said, You're not eligible. And they go, Why? And said, Well, you're just not you didn't meet one of the criteria. Well, all of a sudden they get approached by one of these mills who then says oh yeah, you're eligible and gives them some crazy reason, and then they come back to you and say, Well, you were wrong. I'm eligible. I got $300,000 because Joe, the attorney works for this mill and said I was eligible. So A, you're having to defend the guidance that you gave them and the advice you gave them earlier. Now you're potentially trapped in a position of having to take a loyal client of yours and tell them you can't help them complete their you're going to.

Annie Schwab: [00:17:26] Lose the client.

Roger Harris: [00:17:27] Required actions with the law of amending returns and giving that money back. And that's because and we probably should remind people we're doing a lot of reminding here. We're not talking about a lot of new stuff. We're kind of going back and reminding of things. But let's remind people what the IRS said. Any. Sometime in March of this year when they were asked by practitioners, What do we do if we believe the ERC claim to be false and a client comes to us to amend the return. What did the IRS tell us?

Annie Schwab: [00:18:01] I have the exact wording and it says If the practitioner cannot reasonably conclude that the client is or was eligible to claim the ERC, the practitioner should not prepare the original or amended return that claims or those claims or anything that perpetuates the potential improper credit. So it's basically saying you can't do the work, we can't help you. Now.

Roger Harris: [00:18:30] The reason we care about that is there are prepared penalties. So, of course, we and it's big money. The people that were asking for this guidance were concerned, maybe rightly so, that they could be subject to penalties for amending the returns. Now, what makes this a little different in my mind? Now the guidance is the guidance. So I'm I'm kind of just on my soapbox here preaching more than doing anything. The the amending of the returns would be giving the government back some of the money that the taxpayer was erroneously paid. So, for example, if I got a $300,000 claim and my client is in a 20% tax bracket, theoretically I would give back. 20% of $300,000 or $60,000 and take the harm to the government from 300 to 240, because I've already given them back some of the money. Which I think is probably a good result for the government because at least they're getting 60 of it back without doing anything.

Annie Schwab: [00:19:43] You brought it to them. Yeah, right. If they wouldn't have found it, you're at least giving them giving you 60.

Roger Harris: [00:19:48] But now the guidance says the government's position is no, don't give us the 60. We want them to owe the 300. Well, okay, that seems a little odd to me because now how are you going to get any of it? Because you wouldn't take what was going to give you. So. To me a question whether the guidance was well thought out. It was probably jumped on in a hurry and quickly too, just to get an answer out, because it's hard for me to imagine I'm going to get penalized for giving the government $60,000 of money that they otherwise would not get.

Annie Schwab: [00:20:28] But well, Roger, they could be leaning on all that. $80 billion is some of it's for enforcement. But I mean, can they get all the erroneous claims? I mean, I know they've come out and said that they're going to target these because of the large degree of fraud associated. But, I mean, I don't see how the IRS is going to have the resources to catch everybody.

Roger Harris: [00:20:55] So, in going through that. Yes. No, they're not. They've never had the resources and audits are never intended to catch 100% of the people. It's to catch the people who are probably grossly abusing the law and create an incentive for others not to but to comply. And here's the problem that we're in, in addition to just not being able to amend the return. If you think about it from a tax practitioner standpoint, usually when someone comes to us with another problem that's fair, numbers aren't as big, but they come to us and they did something wrong. You know, first of all, we're not barred from amending the return. And secondly, usually what amending the return means is let's give the money back. And the taxpayer had received all the money. So giving all the money back didn't seem like such a big hurdle. Right. So we would say, all right, you got an extra $1,000 you shouldn't have gotten. I'm going to amend the return. Have you give the $1,000 back? And they go, okay, I'm happy, but I'll do it. But now think about what's probably the situation again, using my same numbers, I was eligible for a $300,000 credit, but the mill took 20%, so I got 240,000. But until and unless we get some guidance or something from the IRS, our job is to convince that taxpayer, even though they only put a 240 in their checking account to give back 300,000 to fix the problem.

Annie Schwab: [00:22:23] Now you're negotiating.

Roger Harris: [00:22:25] Yeah, It's like, wait a minute. Yeah, I got this money.

Annie Schwab: [00:22:28] And even if they agree, even if the client agrees, they may not even have it.

Roger Harris: [00:22:33] But they didn't get it. So if they were.

Annie Schwab: [00:22:35] Because they didn't get it. So, I mean, who's you know, these are big numbers.

Roger Harris: [00:22:40] And that's true. These credits are big numbers. That's a big problem, is that they are big numbers. So it's a.

Annie Schwab: [00:22:45] Lot of money.

Roger Harris: [00:22:46] What do you mean? So again, this is where I think the guidance was maybe a little off putting because they keep thinking like most situations, we'll just tell the client to fix it. Just don't amend the return. Go fix the problem. Amend the payroll tax returns, give the money back. Right. Well, that's okay if I got the money, but I didn't get 20% of the money. I'm not giving you that money back. I'll take my chances. And I'm afraid that's where we might be finding ourselves. For a lot of the people who went to these mills or the mills came to them and convinced them improperly that they were eligible for something they weren't.

Annie Schwab: [00:23:21] So. Question Roger, there's the IRS came out recently and said to use a form and its form 14 to 42 to disclose the mills. I mean, okay, so if you've got your spread there of 60,000 and you can't send it all back, but you fill out the form, you say, well, this is who I use. I mean, do you think the IRS is going to go find these people and get the money from them if they're I mean, they probably changed names three times since then and or shut down or moved locations and who knows what. But I mean. Do they? Do you think that's what the goal of the form is?

Roger Harris: [00:23:56] Well, I think the goal of the form, and it's not a form created for the IRC. It was there before for any kind of tax shelter or anything like that is obviously to point out where there's someone abusing the system. So in theory, yeah, I think they would like to go and shut these people down and confiscate if they could any of their money. The problem is. Is if they don't do this soon, by the time they get around to it, these folks have vanished. I mean, they were You never heard of these companies before the IRC. You'll never hear of them after the IRC. So is it possible? Yeah. Is it likely? Probably not, but.

Annie Schwab: [00:24:37] That's what I'm thinking.

Roger Harris: [00:24:38] Tim. You know, I don't know. Now I will say one thing. The IRS, I mean, they're smart people. They're not crazy. They understand this problem. Again, on that same call where I heard 50,000 a week in new claims, we discussed this problem. I only got to 40. You want 300? You want me to voluntarily come back and give you this money when I didn't get it all? And what about penalties and interest? I don't have any answers for you other than to say that the IRS is very aware of the situation that the small business owner was put in by the mills. And according to them, they're going to have a meeting. I think they said in Austin, Texas. Why Austin? I don't know. And they're looking for ways to either create you could call it an amnesty period, a voluntary disclosure, a safe harbor, whatever. They recognize the problem, but we have no idea what the solution, if any, will be to this problem. They are aware of it. So. You know, first of all, it might be worth just waiting a little while and seeing particularly if there's a process we have to follow or something we have to do to qualify for it, you know, before we jump up and do it. But again, if the danger in that and this is where practitioners are caught in a rock and a hard place, the longer we wait, if they decide, nah, tough, just give the money back, then more penalties and interest is accrued while we wait.

Annie Schwab: [00:26:02] Yeah, I know. There's really no easy choice here?

Roger Harris: [00:26:05] No, it's a good case study of where if you go back to Congress, remember, we're in a pandemic. Everybody is in a panic. We all ignored I.R.S. initially because we all wanted PPP loans because that was the fastest way to get money.

Annie Schwab: [00:26:19] Yep. Yep.

Roger Harris: [00:26:20] And the original bill said, if you get a PPP loan, you can't take the I.R.S.. We forgot about it. Right. And then what happened?

Annie Schwab: [00:26:26] They said you couldn't.

Roger Harris: [00:26:27] They changed the law. You could get it.

Annie Schwab: [00:26:29] Oh, they changed the law so many times. Yeah, we're going to go over some of this, But like, the. The calculations are even different depending on what quarter or year even the the wages were earned. So, I mean, it was hard to keep track of it all. We were having weekly podcasts, I mean, sorry, weekly webinars with our franchisees just to tell them what happened in the last 48 hours because it was changing that fast.

Roger Harris: [00:26:56] And sometimes we'd say, We told you yesterday, forget that it's different today.

Annie Schwab: [00:27:00] Yeah, I know. Really, it really was. It was like, this is only accurate as of the moment I'm speaking because when I wake up tomorrow, it could be totally different.

Roger Harris: [00:27:10] And that's we're not being critical. I mean, we were in the middle. Think about how we all felt when the pandemic hit. I mean, we all thought we were our health was at risk. Our business was at risk. We were just hanging on as best we could. And so I don't fault the rush and the things like that. Yeah, but there were some opportunities, I think, later on when things got a little more calmed down that. Things could have been done differently, but they weren't. So I don't know why we're talking about it because they are what they are. But yeah, you know.

Annie Schwab: [00:27:46] All right. Let me go through some of the basics.

Roger Harris: [00:27:48] Yeah, let's go back. When you're talking.

Annie Schwab: [00:27:49] To your client or you're looking at this stuff, you can at least have a basic understanding of what to talk to the client about or maybe some red flags that should go off trigger you.

Roger Harris: [00:28:01] So, yeah, but before you do, let me say one thing, because if you know the claim is right, you don't have a problem. You just amend the returns and be done with it.

Annie Schwab: [00:28:08] Oh yeah. And if you did it, even better.

Roger Harris: [00:28:09] Even better. So what Annie's is going to talk about is when you're trying to make this judgment about whether that claim is a valid claim or not, Let's go back and see how they could have been eligible and how they could be done. Because, again, if you're confident in the claim, if you did it or a friend of yours in the profession did it and you know it's accurate, you really could have slept through this podcast so far because none of this applies. All you have to do is amend the returns as required by law. And you've done that a thousand times and you get paid for it. And life is good. But let's go back to the beginning because it seems like it was yesterday, but it's been a couple of years. So how do they know, Annie, if the claim is false?

Annie Schwab: [00:28:49] All right. So here here are the rules. You've got the period of eligibility. So that's basically when the wages were paid, which wages would be qualified to use to calculate the credit. And in 2020, it was March 13th, which was the start of the pandemic through the end of that year. And then in 2021, it was January through October. So you basically have like March 1st, whole year through October. But the calculation is different between the two years. So in 2020 it was the credit is 50% of the qualified wages. And then in 2021 they bumped it to 70%. To make it even more complicated. In 2020 it was a credit was done as at an annual cap, which was 5000 per employee credit cap of 5000 per employee, 2021, it was done on quarterly and the cap is 7000 per quarter. So you've got all these different calculations we already mentioned. You can't double dip on on the wages, so you can't use them for PPP and for IRC. So that's sort of, you know, the basics of of how that goes.

Roger Harris: [00:29:59] And that's where- The ads when you see 26,000 in employee, they're maxing, they get three quarters of 2021 and the one and the annual max for 2020. And oh by the way 2021 originally was for the entire year. And then they repealed that and only made it for the three quarters.

Annie Schwab: [00:30:14] Think they repealed it in late October and moved it back to October 1st. So it was like totally retroactive. And again, what a mess. So there's ways that an employee employer, excuse me, can qualify. And the one that you hear most about is the gross receipts test. Right? Basically, they're comparing a certain period of time during the pandemic to a previous period of time. And if your gross receipts declined by a a certain percentage, then those wages for that period would qualify. So that's like, in a nutshell, kind of how it worked.

Roger Harris: [00:30:53] And that's black and white. It's just a math comparison. Yeah, that's, that's, that's.

Roger Harris: [00:30:57] All you got to have. You got to meet the threshold, right?

Annie Schwab: [00:31:00] Yeah. And in 2020, the average number of employees had to be 100 or fewer. In 2021 it was 500 and fewer. And the average number of employees had all these different scenarios. And if you were part time and how do you count your employees and what if they were seasonal and what if they were this? So, you know, I mean, the complicated parts come in here, but in theory, you got this gross receipts test. If your gross receipts compared to a previous period fell declined by a certain amount, you qualify. Then they had this what was called the like a government order. So that was the first one was gross receipts. The second way to qualify was a government order, and that one was highly be focused on facts and circumstances and you had to have more than a nominal portion of the business. Operations were suspended by a government order, and then you had the partial suspension and, you know, the full suspension and kind of all this kind of idea. And, you know, then they said nominal portion. And then we waited and waited and they finally told us what that really means. Right? So which is 10% of sort of they used, you know, not less than 10%. So that's another again, once, you know, you qualify a basic math type calculation, identifying the wages, dropping them in the quarters, applying the percentage, da da da da.

Annie Schwab: [00:32:17] Well, this third one has really caused, I think, the mills to become more aggressive, the marketing to go up. And that's called what what we call is the supply chain interruption. And this one's kind of tricky. You got to got to think about exactly how I'm going to read it so that I don't confuse anybody. But listen to each word closely. And employer may be considered to have a full or partial suspension of operations if the business supplier's not them, but their suppliers are unable to make deliveries of critical goods or materials due to a government order that causes that supplier to suspend its operations. So you have all these terms in there. You know, first it's a supplier, critical good, you know, due to a suspension of operations. And then they go even further to say if the facts and circumstance indicate that the essential business operation. So there's another term with the definition that we don't exactly have. All right. So this is where the I think where the abuse is, is lying. Did I miss anything? Did I. No.

Speaker3: [00:33:30] I think I.

Roger Harris: [00:33:31] Think it's the supply chain that brought the mills to the forefront because it was more of a gray area. But once they got going, they started. But the only one they couldn't play with was the reduction in sales, because that's just facts. And I mean, that's just.

Speaker3: [00:33:48] Comparing. Compare this number to that number. And was it big enough?

Roger Harris: [00:33:50] Yeah, but even in the government orders, we're seeing people use the scenarios that a government order could have created, but not requiring there to be a government order. And we'll give some examples.

Speaker3: [00:34:05] Oh, I see. Okay.

Roger Harris: [00:34:07] That but I think so. Let me kind of jump jump ahead for a minute and summarize. When they come to you, the first thing to do is see if you can get by the calculation of the gross wages, because that's black and white.

Speaker3: [00:34:20] Yeah. Yeah.

Roger Harris: [00:34:21] Okay. So they don't qualify for that. Now, the next question is, do you did you have a government order that changed the ability for you to conduct your business? Yes or no? That's and that can be a local. It can be state can be federal. It doesn't have to just be.

Annie Schwab: [00:34:36] And the websites have that that you can go to a state or a local website and they will list the dates of of these partial or full suspensions. So I mean, that takes a bit of research, but it's available the information.

Speaker3: [00:34:49] And it'll tell you.

Roger Harris: [00:34:50] Then what period the wages have to be paid in because it has to be during that time that the government is giving you this order. So you kind of go there because if there's no government order, that one's out, that's out. Then you move to this more little crazy one, which is the supply chain. And one of the key elements that that wording doesn't necessarily say, but the service has said in FAQs or something, I can't remember where they said the critical supply means you couldn't get it anywhere else.

Speaker3: [00:35:19] Okay.

Roger Harris: [00:35:20] So the fact that your supplier was shut down, let's say let's say you sell. You have a soda fountain in your business and you sell soft drinks and you've been buying 32 ounce cups from the same supplier for 50 years. And all of a sudden where they are, the government shuts them down and they can't supply you cups. But a guy across the town from you has the same 32 ounce cups and they can get them to you. You're not eligible.

Annie Schwab: [00:35:47] Even if you have to pay more, you're not eligible.

Speaker3: [00:35:49] You're not eligible. It's available.

Roger Harris: [00:35:51] You you can still get the cups, you know.

Speaker3: [00:35:54] Right.

Roger Harris: [00:35:54] The credit is if you couldn't get the cups at all. And there's even a nanny's laughing when I said the cups because there's actually a story where somebody said I couldn't get 32 ounce cups, but I could get 16 ounce cups and I sold enough 16 ounce cups to recover for the losses of the 32. But I'm still eligible because I sell 32. You know, the answer to that is no clue.

Speaker3: [00:36:18] But another thing is.

Annie Schwab: [00:36:19] Like, let's say you stopped seeing clients at your office and you started doing Zoom calls. Well, just because you chose, you know, maybe for health reasons or whatever, you chose not to meet your clients at the office, but there was no government order. Well, that doesn't count either. That was a choice. You weren't it wasn't mandated that you could not have your office doors open. So there's also that, like the idea and.

Speaker3: [00:36:44] That's an.

Roger Harris: [00:36:45] Example of what a lot of the mills have convinced, particularly when we mentioned insurance agents. That's what they're saying is they're saying because you had to stop meeting customers in your place of business, you were more than nominally impacted. But they keep conveniently forgetting that government mandate part, right? That's true. That's correct. If you stop because of a mandate. But if you just chose like there's people and I'm not being critical, but there's people who still wear mask. But that's their choice. Yeah, you don't get a tax credit because you chose to wear a mask. You don't get a tax credit because you chose not to meet people in your office because nobody told you you couldn't.

Speaker3: [00:37:24] So I know, I know.

Annie Schwab: [00:37:25] So it's a lot. And so the purpose of this podcast is to just remind you of the basics, right? Remind you that one, it's still available. Two, that, you know, you might be faced with having to turn down work. Should a mill have done a claim and now it's on your plate and you don't think it's right? So now the IRS is saying you can't do the return. And the whole discussion with the spread of getting this and paying the mill and how to return it and should there be penalties and interest. And so, I mean, it's complicated. That's why tax season's not over.

Speaker3: [00:37:56] Right? We're in for a while.

Roger Harris: [00:37:58] And I'm going to make one last comment. And don't hold it against Annie. Don't hold it against Paget. It's me. But your standard here, when making this decision of whether or not you believe the client was properly or improperly entitled to the credit, which then leads to whether you can do the amended return is the basic due diligence requirement. So it's not which they always define in percentages where there's nowhere to go to determine what the percentage really is. But due diligence is basically you could win the argument one out of three times. More likely than not is obviously more than 50% of the time. So we're at our lowest level of proof, I guess. So I don't think you need to go into the arrangement nervous about not amending returns because you have this tremendous burden to overcome. You've got to satisfy yourself that you can do it. And again, I come back to this. Remember the result of what you do when you amend the return is to give the government more money than they currently would have gotten. And I told somebody the other day, if you want to penalize me for giving the government money back that they shouldn't have given out in the first place. I'll be on CNN the next day complaining, and I'll have every Republican in Congress on my side because it makes no sense.

Roger Harris: [00:39:19] But that's the rule. So I think we should go into this not so afraid that we never want to amend a return. So remember, it's a 1 in 3 standard. So just just be smart because I know what the guidance says and this is why it's my advice. If you get mad, call me. Don't call Annie, don't call anybody else. But ultimately, I find it hard to believe that they're going to penalize me for giving the money back to the government if I have a logical reason. If it's black and white, don't amend the return. But yeah, think our inclination maybe should be to because I don't know what other the facts. May be in place unless I'm going to go back and basically redo the claim. I know I can rely on a third party unless there's something I know or should have known. So again, take the obvious, but I would still think the client's better off and we're all better off if we give back some of the money. Because ultimately, if they have to give it all back, at least their part of the way there. That's all I can say.

Speaker3: [00:40:19] Yeah, yeah, yeah.

Annie Schwab: [00:40:20] But and they're trying to comply and, you know, all of that.

Speaker3: [00:40:23] But the guidance is clear.

Roger Harris: [00:40:24] The guidance says and maybe that's why the IRS is having a hard time coming up with the guidance on what to do in that 240. You only got 240 out of 300 because some people have amended the return and given some backs, you know, through amended returns, some others haven't. So it's not as they're.

Speaker3: [00:40:39] Processing 50,000 a week, that's.

Roger Harris: [00:40:41] Another issue. So. All right. Have we beat this up enough?

Speaker3: [00:40:45] Yes.

Annie Schwab: [00:40:45] Yes. Let's let's move on from ERISA.

Speaker3: [00:40:47] Let's let's see if we can.

Roger Harris: [00:40:49] Talk about something else and not talk about the IRC for a while.

Annie Schwab: [00:40:52] All right. So let's talk about the Tax Cuts and Jobs Act. So this was in that law.

Speaker3: [00:40:59] That's the law.

Annie Schwab: [00:41:01] No, it mean it was in 2017, 18, 1920. But guess what happens at the end of 2025 reverts back to where we were in 2017.

Speaker3: [00:41:12] So all those courses.

Roger Harris: [00:41:14] I went to in 2017 to learn this stuff, I have to forget in the next few years.

Annie Schwab: [00:41:19] Well, I mean, something could happen. They mean law could change things, could be retro, you know, changed retroactively. But as the law stands right now, there are 23 provisions directly related to individual income tax that are set to expire at the end of 2025. Now, 2025 seems pretty far off. But if you think about it, there's a lot going on in 2024 with the elections. Like an.

Speaker3: [00:41:47] Election. Yeah.

Annie Schwab: [00:41:48] Like a like a big election. Yeah. Which would definitely impact whether or not some of the provisions, some are all or none or who knows of the Tax Cuts and Jobs Act would be extended or made permanent into law or mean anything can happen. But the point is with 23 provisions and I'll give you some as an example in just a minute that are set to expire, there's definitely an opportunity there for tax planning and it should be on the radar.

Speaker3: [00:42:16] For tax practitioners.

Roger Harris: [00:42:17] Things you might want to do now, before now we know politics plays nothing to do with this. But if you don't know what the Tax Cuts and Jobs Act is, it's probably because all you have heard it called for the last few years or the Trump tax cuts. So that tells you something about depending on how the election goes, which of these 23 items are most likely to stay or go. And if you started preparing taxes after 2017, this is the only law you've known. But it wasn't always the law and it may not always be the law.

Speaker3: [00:42:54] So know.

Annie Schwab: [00:42:55] And if they you know, if they expire the the lower rates climb back up. We come back to the personal exemption and the standard deduction goes down. Remember, we used to have a personal exemption and a standard deduction that qualified business income gone, Gone. That's on the table. We've heard and talked actually a lot about that $10,000 state and local cap. Right. Well, that goes away. So if you itemize, that could be beneficial. We've got the business loss deduction. That limitation reverts back. Miscellaneous itemized deductions come back on the return. Those had been cut off and.

Speaker3: [00:43:36] Reverts taxes.

Roger Harris: [00:43:36] And employee business expenses, common.

Speaker3: [00:43:39] Ones, all that.

Annie Schwab: [00:43:40] That was on schedule. A We've had a lot of favorable depreciation. You know, the rates, the bonus depreciation, those kinds of things. We've all dealt with the child tax credit that was over the last. So, I mean, these are just examples of some of the provisions that are in there that, you know, will impact if they don't be if they don't get addressed. So don't know.

Roger Harris: [00:44:04] Well, and politicians are smart. They pass them and they make the repeal date after a presidential election.

Speaker3: [00:44:10] So, yeah, the timing.

Annie Schwab: [00:44:11] Of this is quite.

Speaker3: [00:44:12] Perfect.

Roger Harris: [00:44:12] It's quite ironic. So I think the first thing is, you know, we should pay attention to what the candidates are saying because this again, if they do nothing, it just goes away.

Speaker3: [00:44:22] It is back. Right?

Roger Harris: [00:44:23] This goes back to the pre tcja rules. If they want to do something, it's going to take Congress and the White House to to do it. They can keep some they can throw them all out. They can change them. They can do whatever they want to. So this is going to be a big election for tax policy. So it's going to have a big impact on how much more we have to learn or where do we start, where do we go? So we should start by saying pay attention to this election. I don't know how you can avoid it, but, you know, maybe pay more attention to the discussions about this. I think it's pretty predictable where they're going to fall from a party standpoint. But anyhow, but then look for things over the next couple of years that maybe clients doing something is better than waiting because the new law could hurt them again. Let's just take rates as something. If they do nothing, rates are going up. So you would want to get your income in the years with the lower rates and not let it fall after this potentially expires into the upper rates. There's there it's it's never too early to but I think the main thing Annie I would say and then I'll let I'll shut up and let you talk is we tend to think that the tax law we're working in is always been this law and it's always going to be this law. But so much of what we're dealing with today is got an expiration date on it.

Annie Schwab: [00:45:45] It's and in the time flies. I mean, like I said, I mean, at the end of 2025, I mean, probably sitting there thinking, oh, I got a lot of time. They'll give me answers. And it just it goes so fast. And if you don't act before we get there, it's almost too late to implement the opportunity.

Speaker3: [00:46:03] Yeah. At least let your clients.

Roger Harris: [00:46:05] Know that this is a possibility. I wouldn't hazard a guess A how the election is going to turn out or be based. Even if you could tell me how it's going to turn out. I couldn't predict what's going to happen to this bill. So we're not going to really know until it's over. So what would you do given the uncertainty? Start thinking about it. Start targeting clients where it might be important for them, because sometimes things take a while to execute and.

Speaker3: [00:46:34] You may want to start to.

Annie Schwab: [00:46:36] Have the answer. Like you don't have to tell them what their answer should be, but you can educate them on the what ifs and let them. I mean, they make the decision on their own.

Roger Harris: [00:46:46] Yeah, it's ultimately their money. So it's their decision. Yeah.

Annie Schwab: [00:46:49] Well, tax season has come to an end in some sense, I suppose. But if you. I just wanted to mention, I don't know, give a hand of applause. A little kudos, a little thumbs up. There's there's talk that this is been an amazing tax season compared to the past few years. There's been progress. There's processing logs are behind us answering wait times are down, customer service rapport is up. We're starting to see some of the implementation with the tech improvements. So, I mean, I know like you said, 50,000 a week in claims mean they're trying. They're trying. And hopefully we'll see more progress with how the money is spent. I will give you a heads up, though. There's May May 17th. Okay. Found my date. May. As of May 17th, the IRS will no longer support E-service user names. You have to go through their account to sign in and you'll get prompted and then they'll ask you to, like, set it up and set a password and blah, blah, blah. But just a heads up. If you're, you know, accustomed to just logging in through e-services, you're going to need to go through that process.

Speaker3: [00:48:09] Yeah, and if you haven't been, I think they can take a little.

Roger Harris: [00:48:12] I mean, it's not that.

Speaker3: [00:48:13] Some.

Roger Harris: [00:48:13] But yeah, you just don't want to need something on May the 18th and you haven't set up your account and you try to log in and you're just you don't exist anymore. On May 18th.

Speaker3: [00:48:24] From their perspective, put a reminder on your.

Annie Schwab: [00:48:26] Calendar to to to to make the and if.

Speaker3: [00:48:29] You don't over just go log.

Roger Harris: [00:48:30] Into your account and you'll know.

Annie Schwab: [00:48:32] Yeah it'll prompt you, it'll tell you and you just walk through the steps and Roger you're right it doesn't take that long, but it's something that you want to do before the 17th so that you're not caught off guard for sure.

Roger Harris: [00:48:42] Now, one thing that and I think it's still true, I set mine up a while back. If you don't have a cell phone in your name, you might have a problem because they got a text you a code or some stupid thing like that. And they got to make sure it's the your phone. Now, they may have changed that recently, but it's just different.

Speaker3: [00:49:00] No. And and they ask you.

Annie Schwab: [00:49:02] Those questions like what kind of car loan did you have when you were 15? Who knows?

Speaker3: [00:49:08] But so just just.

Annie Schwab: [00:49:09] Sometimes you got.

Speaker3: [00:49:10] To go go check it.

Roger Harris: [00:49:11] It's what we got to weeks from today, basically. So if you're listening to this before the 17th, just go try to log into your e-services account and determine if you've got it set up properly. Because if you wait till after that and you need it in a hurry, you may get delayed, have to wait.

Annie Schwab: [00:49:28] Well, the IRS had a good tax season. How do you think all these tax practitioners had?

Roger Harris: [00:49:33] You know, it seems to be different depending on who you talk to. Yeah, I think there was an article in accounting today the other day that seemed to indicate that the majority of people thought it was better mean service was definitely better now. Oh, yeah, there's no question about that. But it depends on who you talk to. And I think the way I'm going to answer that because this is going to be I think the topic on our next podcast is like so to whether this was a good tax season or a bad tax season. Our industry is going through some challenges in that we have fewer people entering it, fewer people coming out of colleges and universities, even if they finish their accounting degree, taking the CPA exam. We're all having trouble hiring people. We're seeing too many firms that are working long, long hours that are impacting their family, their health, their ability to hire people. Because today's generation doesn't want to come into a business that says, what do you mean? I've got to work 80 hours a week? What do you mean? I got to work seven days a week? What do you mean? I got to come into a brick and mortar building. So I think what we're going to have to do as an industry is change, which is never a word that people in our profession like.

Speaker3: [00:50:51] But change is hard.

Roger Harris: [00:50:52] So I think a lot of this tax season depended on how you came into it, what your mindset was, what your business structure was, how did you operate, what what did you done? And we're going to talk about that on our next podcast. At least that's the plan for right now because I think it's going to come incumbent on us if we want to compete for good employees and ultimately sell our business to someone who's younger than us and growing up in today's world and maintain our health and our family life, we're going to have to change a lot of the way we've always done things. And. I think we're separating ourselves over time into two groups, those that did and those that didn't. And I think that's why this is that's a long story. It's a plug for our next podcast. It's a long answer to your question, but I think that's why you get diverse answers to the question of how to tax season. Go Yeah, some say it went great. It's the best one I've had in years and some say it's the worst I've ever had. And well, the thing is, we all deal with the same IRS.

Annie Schwab: [00:51:54] Yeah, yeah. And all the mean You have good clients and bad clients. Everybody's got that. You've got the ones who take forever to get you the information. You've got the ones who never pay you on time, all of that kind of stuff. But I do. I think you're right, Roger. If your goal of tax season was to not work on the weekends and you managed to do that, then you're going to say tax season was great. If your goal was to churn out 850 tax returns and you did that, you might say it's great, but you might have worked 80 hours a week too. So it's it's kind of, you know, what is it that you wanted out of tax season and did you get what you wanted? And if you didn't, we said this on our last podcast, This is the time to do an after action report for your tax season. Identify the bottlenecks or the things preventing you from having the quality of life or the work life balance that you were that you want. And then knowing it, you have to make the change. Just knowing it and not doing anything about it is just going to repeat itself. So, you know, I think the first thing is to to set what what do you want? What what do you want for your business, for your family, for, you know, is it all about making money? Is it about not working weekends? Is it about taking off for vacations and having peace of mind that the business is running smoothly? Is it to prepare your business for sale so that you can get top dollar? I mean, all of these things impact what you want and then how to get there.

Roger Harris: [00:53:26] All right. And I'll give and probably giving away the whole podcast, but I promise we'll have more. But the one thing I would suggest this is a good time to also sit down with your family and ask them what they want out of future tax seasons from you. I think you'll hear things like, I want you home, I want you less stressed. I want you not to miss. Our children's activities. Their goal for what they want out of you and businesses may not be what you think it is. Now, they're not going to hound you and they're not going to bug you, but go have a discussion with your spouse. I promise you that they probably want what's best for you and they might give you some good ideas because we have the we have a unique opportunity to be very successful in this business, but it shouldn't come at the expense of our family or our health. And again, the next podcast, we'll get into a little more detail. We just came back from a company retreat in Scottsdale, Arizona.

Speaker3: [00:54:24] Where they had to go back to Scottsdale right.

Roger Harris: [00:54:28] Before the summer gets because it was warm, but it was nice. But, you know, we started talking about how this is just something that we have to do and brought in some outside people to talk about ways to do it. And, you know, what I found interesting is nobody objected to it. It's like, well, how do I do it?

Speaker3: [00:54:48] Just give me the give me, give me just.

Roger Harris: [00:54:50] Tell me what to do. Because I don't know that anybody there's somebody out there that likes working 80 hours a week. I'm not one of them, but I'm sure there are some. But I think there's ways to build a successful business with a healthy family relationship and good health. It's you don't have to make a choice.

Annie Schwab: [00:55:10] And if you want to hear more about that, join us.

Speaker3: [00:55:12] On join us the next.

Roger Harris: [00:55:13] Podcast whenever that is, because we are going to spend a good because I do think it's critical to our industry. I think all of us are. I think the.

Annie Schwab: [00:55:20] Profession is changing. We have we have to make changes.

Roger Harris: [00:55:23] And we should bring your husband on because he can talk about it. He's kind of like the canary in the coal mine because he sees it. He's a accounting professor so he can talk about the attitudes of the students, the students that are coming, the number that are coming versus aren't coming, the ones that are, you know, want to go work in the industry and the ones that are leaving for background because it starts there. And you see AICPA talking about changing the 150 hour rule because.

Speaker3: [00:55:49] And the time for taking the CPA.

Annie Schwab: [00:55:52] Exam. Yeah, that's also like how long I think we had to do an 18 months and now they're talking about doing it in 24 months, giving people more time. I don't know about you, but I had to take it all at all at one time.

Speaker3: [00:56:03] Yeah. All four.

Annie Schwab: [00:56:03] Parts in.

Speaker3: [00:56:04] Person. Yeah.

Roger Harris: [00:56:05] It's starting. You're seeing it at all levels that we're not as attractive a profession as we once were. And we can fix that. And we need more people in the industry because those are the people that we're going to hire. Those are the people we're going to sell to. You know, if you sadly, if we let it be controlled by a small number, the big firms are going to scalp up all the talent.

Annie Schwab: [00:56:30] That's true.

Speaker3: [00:56:31] So true.

Roger Harris: [00:56:32] Anyhow, so you've heard the tease for next podcast and we'll talk more about it and give you some tips on how to do it, because I really think it's probably a bigger challenge for us than just knowing how to do an IRC claim.

Annie Schwab: [00:56:45] Yes, Yes. Change is hard.

Speaker3: [00:56:48] It's hard, but.

Roger Harris: [00:56:49] It's not all bad. It's a lot of times it's good. Yeah. What else? What else Do we need to talk. That's it.

Speaker3: [00:56:54] We're done. That's it. That's all I've got today. We are done. Yeah.

Roger Harris: [00:56:59] We finished another podcast.

Annie Schwab: [00:57:01] It's time for me to go home. Tax season's over. My day is done.

Roger Harris: [00:57:06] Yes. Hopefully all of you are listening to this with your earbuds in as you are sitting on a lounge chair staring at the ocean or a pool or something like that. Because I know you worked hard and you are very deserving of some time off. But, you know, let's let's keep doing a good job for our clients and but let's not do it at our expense. Anything else, Annie? Are we done.

Speaker3: [00:57:28] For the day? That's it.

Annie Schwab: [00:57:29] Roger.

Speaker3: [00:57:29] We're done.

Roger Harris: [00:57:30] Thank you so much, Annie. And look, thanks to all of you for listening. We hope you enjoy these podcasts. We hope you tell your friends and get them to continue so we can continue doing these things. We'll try to if you have any topics you'd like us to address, let us know. We'll try to cover. We're going to try to keep it conversational and varied and move around to different things that hopefully are of interest to you. But thank you for listening. Annie, as always, thank you for all your effort. And he puts all this stuff together and she just winds me up and tells me what time to be here. So she gets all the credit. So thanks to Annie. Thanks. My pleasure. My pleasure. And we'll see you in a few weeks.

Annie Schwab: [00:58:08] Sounds good. Take care.

Speaker3: [00:58:09] Bye.