Use caution when applying for the employee retention tax credit

The majority of the COVID-19 pandemic federal relief packages has expired, leaving the Employee Retention Tax Credit (ERTC) to take center stage.

As we now know, regulatory investigation and enforcement under the Paycheck Protection Program (PPP) loan program were grossly remiss, inclusive of the dental industry as I've written in the past. The government aid program for small business assistance generally was rife with fraud and abuses.

Initially when PPP loans and forgiveness were rolled out, applicants were ineligible to apply for the ERTC. Congress has since amended that stipulation, but with significant provisions to prevent double dipping.

Dr. Michael W. Davis.

In the wake of a new tsunami of relief money, a number of dubious ERTC retrieval groups have come onto the scene offering to provide this complex filing service. They often charge 15% to 35% of the monies recovered. The dental accounting firm Cain Watters & Associates provides examples of how certain companies engage in questionable math to calculate a dental practice's return.

Benefits programs for member dentists in state-organized dentistry have jumped on board offering sponsored ERTC service companies. This includes the Michigan Dental Association and the Texas Dental Association.

I urge caution when considering whether you qualify for the tax credit. U.S. Internal Revenue Service (IRS) rules under the ERTC are arcane and include stiff penalties for violators. Readers are invited to examine related complex IRS rules, including the following:

• Notice 2021-20
• Notice 2021-23
• Notice 2021-49
• Notice 2021-65

Please remember, the beneficiary of these federal monies will be subject to potential penalties and fines, and not the persons or agency that prepared the documents. One is also left to wonder if a retrieval company will be there to defend a doctor in the event of an IRS audit.

Do not become a target of the IRS

While not apparent when PPP loans were initiated, our current levels of inflation are top of mind today. Governments have some means of bringing down inflation, which may directly impact your chances of getting audited by the IRS.

One possible mechanism for fighting inflation is to raise taxes and collect tax monies owed, a strategy laid out by President Joe Biden in a May 30 editorial in the Wall Street Journal. The Inflation Reduction Act of 2022, which was signed into law earlier this year, makes common sense reforms to the tax code and gives the IRS more resources to collect money taxpayers owe. It roughly increases the budget of the IRS by $80 billion over the next 10 years, with the bulk of the funding going toward enforcement programs.

A beefed-up IRS will not likely tacitly allow fraud and abuses attached to the ERTC program, as was evidenced by the PPP program. One might reasonably expect increased numbers of audits and additional scrutiny with those audits due to the IRS' newfound resources and the government's desire to control inflation.

Of course, every taxpayer, individual or corporate, should only pay those taxes lawfully owed, and every lawful tax deduction and exemption should be taken. However, assuming that ERTC federal allocations are basically free money for the taking is hazardous. Inflation has changed our landscape.

I advise owners of dental practices to only file for the ERTC program after consulting with their trusted and experienced certified public accountant. This is not an undertaking for a "here today and gone tomorrow" ERTC filing service. The federal government's effort to fight inflation and amass IRS money will not care if a shady financial consulting company advised the taxpayer.

The IRS will collect. Do not become their target.

Dr. Michael W. Davis practices general dentistry in Santa Fe, NM. He also provides attorney clients with legal expert witness work and consultation. Davis also currently chairs the Santa Fe District Dental Society Peer Review Committee. He can be reached at [email protected] or SmilesofSantaFe.com.

The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.