In the RV industry, the buzz around the IRS’s Employee Retention Tax Credits (ERTC) has reached another new peak. With recent IRS actions causing confusion, many dealers are left questioning the changes and the program’s reliability.
In response to a surge in questionable ERTC claims, the IRS has put a pause on processing these claims until year end, raising alarms for businesses that have benefited or considered applying. The news has been compounded by a marketing flood—from cold calls to commercials—promising dealers easy access to ERTC refunds, muddying the waters further.
Among this chaos, the IRS is allowing employers to retract their ERTC claims, leaving many to ponder the implications. Dealers are now caught in a dilemma.
Is the ERTC a genuine relief measure or a path fraught with risks? For those who received refunds, should they return the money?
For those who have yet to claim funds, is it too late to claim what might be rightfully theirs?
The answer is complex and varies: “It depends.”
So, what should an RV dealer do amidst this uncertainty?
Understanding the ERTC’s original purpose is crucial. The tax credit was established as a lifeline for businesses during the pandemic, providing tax relief to businesses that kept their staff employed despite the economic downturn.
The ERTC’s intricacies and stringent requirements make the program nuanced and one that does not lend itself to a one-size-fits-all answer.
You have likely read or heard about employers who may qualify for up to $26,000 per employee—which could be true. So, let’s start by reviewing how businesses qualify for ERTC:
- First, the ERTC program covers seven potential quarters, running from Q1 2020 through Q3 2021. Each quarter is evaluated independently. You can qualify for one or more quarters.
- Next, there are two distinct paths to qualify: Either by revenue reduction or by government orders or mandates that more than nominally impacted your business. You may qualify for one quarter using the revenue reduction test and another quarter because of a government mandate.
The easiest and clearest qualification is the revenue reduction test. The test is a straightforward calculation:
- The 2020 credit requires a 50% or more gross revenue reduction for the quarter, compared with the same quarter in 2019.
- The 2021 credit requires a 20% or more gross revenue reduction for the quarter, compared with the same quarter for 2019.
At this point, you are probably thinking, “I’m an RV dealer. I certainly did not have a decline in revenue during 2020 or 2021!”
Trust me, do not stop reading yet.
The second path to qualify is either a full or partial operations suspension because of a direct government order or mandate. The order can be at the federal, state, local or municipal level. This is the program’s gray area, where Congress and the IRS did not provide much guidance or bright-line tests. Although this is the “proceed with caution gate,” the path can result
in a legitimate refund claim.
Your dealership may very well qualify, but you must understand this is a research project that will require considerable time and substantiation. You must demonstrate a more than nominal (commonly considered more than 10% of revenue) portion of your business was suspended because of the government order or mandate. This can be directly or indirectly suspended business because of impacted suppliers.
If you determine you are eligible for the ERTC for one or more quarters, you next must calculate the dollar amount of your eligible refund, taking into consideration wages used for PPP forgiveness. You then amend your Form 941 for the eligible quarter (2020 or 2021) and submit the form to the IRS. Additionally, you will need to amend the business’ income tax return (2020 or 2021) to reflect the reduced payroll tax, which ultimately results in an increased income tax liability for that tax year.
If you have not evaluated your dealership’s ERTC eligibility, doing
so remains prudent. However, a wait-and-see approach may be beneficial. We expect the IRS to continue distributing additional guidance and information as it considers accurate and fraudulent claims. Employers have until April 2024 to file 2020 refund claims and April 2025 to file claims for 2021.
The following are actionable considerations to get started:
- Did you have 100 or fewer full-time employees in 2019? If so, you have potential 2020 eligibility.
- Did you have 500 or fewer full-time employees in 2019? If so, you have potential 2021 eligibility.
- Did your gross revenue decrease by 50% or more when comparing 2020 to 2019, quarter over quarter?
- Did your gross revenue decrease by 20% or more when comparing 2021 to 2019, quarter over quarter?
- Were you subject to government orders that restricted your business in 2020 or 2021?
If you have already applied for ERTC funds and did not have a drop in gross receipts for 2020 or 2021 compared with 2019, consider the following:
- Did you use a reputable vendor who performed an in-depth study of your operations and how they were impacted by government mandates during 2020 and 2021 for each quarter?
- Did the vendor provide you with written support and document the government mandates that impacted your operations or those of your supplier that led to your qualification due to your supplier’s suspension?
- Did the vendor perform calculations to eliminate wages used for PPP forgiveness in determining your ERTC-qualified wages?
- Do you feel confident your research and documentation support your refund claim?
- Have you amended your income tax returns for the appropriate years to reflect the reduced payroll tax expense?
Discussing these critical questions with a qualified tax professional or legal expert can determine whether your claim is well founded and compliant or if other steps are needed.
As you can see, this process is not quick or easy. Dealers must navigate these waters with care, weighing the potential benefits and program legitimacy against the compliance error risk and time investment.
The best action is to seek advice from reputable tax professionals who can provide clarity on the ERTC’s current state and guide dealers through the decision-making process. With expert insight, dealers can make informed choices about their next steps, be it applying for, retracting or keeping the ERTC funds.
If you have any other questions or need assistance with an ERTC claim, email Jane Saxon, managing director at CBIZ Somerset.
Jane Saxon is the managing director at CBIZ Somerset. Her focus is serving clients in the RV, automotive, powersport, boat, ag equipment and construction equipment industries.
