Accounting
I’m a CPA and my client claimed a questionable Employee Retention Credit. Now what?
The Internal Revenue Service announced in March that its compliance efforts related to the Employee Retention Credit
According to the IRS, which as of the end of February 2024 had initiated more than 386 criminal cases in the ERC space, enforcement efforts will only continue to expand. IRS Commissioner Danny Werfel has also made it clear that the IRS is taking erroneous ERC claims seriously, recently commenting that the agency remains “concerned about widespread abuse involving these claims that have harmed small businesses.”
In the face of these eye-popping statistics, and the IRS adding ERC fraud to its “Dirty Dozen” list of abusive tax schemes, the question for accountants across the U.S. becomes: “What is my responsibility if my client presents me with a questionable ERC claim?” More importantly, accountants need to ask themselves what personal risks they take on if they push through an ERC calculation they suspect could be inaccurate.
The IRS Office of Professional Responsibility
Citing Section 10.22(a) of Circular 230, the IRS OPR stated that if “the practitioner cannot reasonably conclude … that the client is or was eligible to claim the ERC then the practitioner should not prepare an original or amended return that claims or perpetuates a potentially improper credit.”
The IRS OPR went on to state that, as a best practice, tax practitioners should consider advising their clients of the option to file an amended return, as well as penalties for noncompliance.
In short, Section 10.22(a) cited in the guidance binds accountants to diligence as to the accuracy of the claim and requires a reasonable inquiry to confirm the client’s ERC eligibility, as well as further inquiry into the credit calculation if it appears to be incorrect, incomplete, or inconsistent.
IRS OPR Director Sharyn Fisk
Fisk has gone on to say that accountants aren’t exercising due diligence if they fail to ask the question of a client or a third party who calculated an ERC, while noting that documentation is critical for tax practitioners to protect themselves.
The American Institute of CPAs has also issued warnings to accountants reviewing ERC calculations from third-party providers. The AICPA stated in
The AICPA added that, if asked by a client to prepare a return using information from a third party, including ERC calculations, accountants “should first obtain a signed engagement letter defining which federal and state tax returns require preparation or amendment and then evaluate the information in accordance with professional standards.”
In terms of factors to consider when an accountant is vetting an ERC calculation, the IRS has provided a list of
In short, accountants who are seeing a noticeable lack of documentation to support a credit, or excessively high ERC calculation based on what they know of their client, should take steps to validate the figure, including consulting with those firms that specialized in tax credits prior to the COVID-19 pandemic, before moving forward.
Return preparers who fail to take note of these red flags and either proceed with ERC calculations they know aren’t reasonable, or fail to amend an existing claim, might face consequences themselves, including possible disciplinary proceedings from IRS OPR for those who have ignored Circular 230, as well as possible preparer penalties under Section 6694 or 6701 of the Internal Revenue Code.
As stated, the IRS’s ERC enforcement campaign is far from over. And although the agency’s Voluntary Disclosure Program for ERC ended on March 22, there are still some options available. Tax practitioners should inform their client of the option to
American CPAs cannot, and should not, accept ERC calculations they feel lack a reasonable basis. As a result, it is incumbent upon accountants faced with questionable ERC figures to ask the right questions and consult established tax consulting firms in order to validate the ERC figure at issue.
Eide Bailly LLP, a Top 25 Firm based in Fargo, North Dakota, is expanding in the Midwest, adding Volpe Brown & Co. LLC, a firm headquartered in North Canton, Ohio that specializes in serving McDonald’s franchises.
The deal is set to take effect on May 5. It will expand Eide Bailly’s footprint in northeast Ohio and add a team with over 40 years of experience in client accounting services, complex reporting, tax and advisory work, especially for McDonald’s franchise owner operators.
“After meeting with Eide Bailly’s leadership and experiencing the professionalism and care shown during due diligence, I knew this was the right path forward,” said Volpe Brown founder Tony Volpe in a statement Monday. “Their values, culture, and people-first mindset mirror what we’ve built over four decades.”
Financial terms of the deal were not disclosed. Eide Bailly ranked No. 19 on
“This addition reflects Eide Bailly’s commitment to aligning with firms that share our vision of forward-thinking service, client care, and a strong internal culture,” said Eide Bailly managing partner and CEO Jeremy Hauk in a statement. “We’re proud to welcome the Volpe Brown team and continue building our presence in Ohio with people who care deeply about their clients and community.”
Eide Bailly’s already has some employees in Canton, Ohio, but as part of the transition, they will relocate to Volpe Brown’s office in North Canton.
Eide Bailly expanded to Ohio just last year by merging in
Andersen Group, the resurrected version of the former accounting giant Arthur Andersen, has made plans to go public, submitting a draft registration statement on Form S-1 with the Securities and Exchange Commission.
The firm said Monday the registration relates to a proposed initial public offering of its common stock. But the number of shares to be offered and price range for the proposed offering have not yet been determined. The IPO is expected to take place after the SEC completes its review process, subject to market and other conditions, according to Andersen.
In February, Andersen announced plans to
It was originally known as WTAS (short for Wealth and Tax Advisory Services USA Inc.), which was founded in 2002 by CEO Mark Vorsatz and 22 former Arthur Andersen partners. Vorsatz renamed the firm Andersen Tax in 2014 after acquiring the trademarks and copyrights from Arthur Andersen LLP and Andersen Worldwide, and has since grown the network worldwide.
Andersen Global now has over 19,000 professionals worldwide and a presence in over 500 locations through its member firms and collaborating firms. In the U.S., Andersen has more than 2,000 people in 24 cities across the country.
Andersen Consulting will be offering services such as human capital management, cybersecurity, business transformation, strategy, technology, artificial intelligence and sustainability. Existing consulting clients include Abbott, BMW, Cisco, Heineken, IKEA, ING, LEGO, Mercedes-Benz, Michelin, Microsoft, Pizza Hut/Sapphire, T-Mobile and Toyota.
Semple, Marchal & Cooper LLP, a Phoenix-based firm that took over the audits of Trump Media & Technology Group last year, has filed suit against the BDO Alliance and its chairman after it was ejected from the alliance following an angry phone call.
The firm’s lawsuit alleges it was kicked out of the alliance because it took on Trump Media as a client, a contention the BDO Alliance denies.
Trump Media, the parent company of the Truth Social network founded by Donald Trump,
SM&C has been a member of the BDO Alliance for 30-plus years and was a founding member in 1994, according to a lawsuit it filed in March in an Arizona court, and over that time has paid more than $2 million in fees. There was only a brief hiatus in the firm’s membership in the alliance during that time due to a conflict of interest that the firm says has since been resolved. One of its founding partners, Robert Semple, has also been a member of the Alliance Partners’ Advisory Council for approximately 10 years. The firm has remained in good standing, at least until June of last year.
The firm’s lawsuit claims that after news reports began to circulate last May that Semple, Marchal & Cooper was Trump Media’s new auditing firm, the firm’s director of assurance services, senior partner Steven Marchal, received a phone call from Michael Horwitz, executive director of the BDO Alliance, in which Horwitz questioned the firm’s decision to take on Trump Media as a client, and asked why it didn’t alert the alliance in advance.
The suit further alleges that Horwitz threatened to kick SM&C out of the alliance if it didn’t resign from the audit, and claims that after the firm refused, it received a letter from the alliance dated May 31, 2024, with an effective date of June 30, 2024, that terminated the firm’s membership.
The BDO Alliance strongly disputes the allegation.
“The allegations in the complaint are frivolous and lack any foundation in the reality of why BDO Alliance USA chose to exercise its right to sever its relationship with the plaintiff,” it wrote in a statement to Accounting Today. “While members are independent firms charged with their own professional decision-making, BDO Alliance USA has the rarely used right to sever that relationship when quality and other issues are present. Plaintiff’s effort to distort the decision to sever the relationship will be vigorously defended in the judicial process.”
SM&C’s suit claims that the termination of the firm’s membership in the alliance has created the false and misleading implication that it happened either because somehow its independence as an auditor had been compromised by its political affiliation or because of some other supposed misconduct. But the firm asserts it has not compromised its independence nor engaged in any misconduct. Instead it says the alliance wanted it to compromise its independence by allowing political views to “infect” its role as an auditor of a publicly traded company.
Semple, Marchal & Cooper declined further comment beyond the lawsuit.
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