bradley burnett’s answers for the top 11 client questions on the employee retention credit

the best responses for the most common erc questions.

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by bradley burnett, jd llm

1 – do i qualify for the covid employee retention credit (erc)?

answer: a business qualifies if it either has a requisite drop in gross receipts for a quarter, is shut down by a government order re: covid, or (only for 3q and 4q of 2021) is a “recovery startup business” under arpa.

2 – i heard about arpa’s expansion of the erc to recovery startup businesses. can you describe it to me?

answer: a recovery startup business is any employer “(a) which began carrying on any trade or business after february 15, 2020, and “(b) for which the historic average annual gross receipts do not exceed $1,000,000.

3 – is my business considered a recovery startup business?

answer: to answer this question involves an analysis of whether: a. a newly established (after 02/15/20) business is a separate business from others owned by the same taxpayer; b. has low enough gross receipts; and c. consideration of applicable aggregation rules.

4 – can i qualify for erc even though i don’t meet the usual erc qualification rules?

answer: it is possible to so qualify for 3q and/or 4q of 2021 if the business qualifies as a recovery startup business.

5 – when does ppp forgiveness have to be completed and filed?

answer: ppp forgiveness must be filed with sba on or before the final scheduled ppp payment is made. ppp forgiveness need not be filed prior to filing a claim for the employee retention credit (erc).

6 – what is the best way to determine if i can retroactively qualify for erc?

answer: determine (a) whether the employer qualifies for erc for certain retroactive quarters; (b) erc qualifying wages were paid within the quarter, and (c) such wages were not used up for either ppp forgiveness or other disqualifying tax break.

7 – how do i attach records for ppp forgiveness?

answer: seek guidance from the instructions for the info to be attached and how to do so. coordinate the same with the lender.

8 – what is the effect of claiming the erc (against employment taxes) on my business income tax return?

answer: the amount of erc claimed reduces the amount of deduction for wages that generated the erc. if 2020 wages generated the erc, reduce the 2020 wages, regardless of the year the erc refund is received.

9 – what forms, steps, and in what sequence, do i need to follow to claim erc?

answer: claim erc on either form 941, 941-x, or other applicable employment tax return. don’t wait past the applicable statute of limitations for claiming a refund.

10 – how long do i have to keep records related to proving maximum ppp forgiveness and erc and what is the method i should follow?

answer: for ppp forgiveness, keep required records (per applicable form instructions) for up to eight years. for erc, keep required records (per applicable form instructions) for up to nearly six years. 

11 – which of our wages, health insurance payments, and other compensation costs qualify for ppp forgiveness and which for erc?

answer: the answer to this question requires an in-depth analysis of the extensive ppp-covered payroll cost rules and erc qualifying wage rules. we have a thoroughly researched and up-to-date 54-slide chart, complete with source law citations, in our erc and ppp course materials which fully explains similarities and differences between the two.

bradley burnett, j.d., ll.m., is a practicing colorado tax attorney with 38 years of tax practice experience.  his practice emphasis is on tax planning and tax controversy resolution.  he also prepares a handful of tax returns.

before establishing his law firm in 1990, he practiced tax accounting with national and local cpa firms, worked as a trust officer for a denver bank, and managed the tax department as a partner in a medium-sized denver law firm.  after receiving his undergraduate degree in accounting and a law degree (j.d.), he earned a master of laws (ll.m.) in taxation from the university of denver school of law graduate tax program.

mr. burnett has delivered more than 3,400 presentations on u.s. tax law throughout all fifty u.s. states, washington, d.c., the bahamas, italy, greece, turkey, and canada. he has authored over 40 cpe courses.

bradley served as an adjunct professor at the university of denver school of law graduate tax program, where he pioneered an employment tax course and occasionally pinch hit teaching the irs practice and procedure topic.  he has appeared on television answering tax questions for call-in viewers of denver nbc affiliate kusa channel 9.  brad received the illinois society of cpas instructor excellence award for teaching in chicago and five times has been the top-rated, most requested instructor for cpa society annual tax conferences.

burnett’s seminar style is to deliver the subject matter in a briskly paced, enthusiastic, and witty fashion.  his forte’ is the candid communication of practical ideas relating to tax law.

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