accounting - Harding, Shymanski & Company, P.S.C.

IRS moves forward in Employee Retention Credit processing

Posted on July 1, 2024

The Employee Retention Credit (ERC) was introduced as a relief measure to help businesses retain employees during the COVID-19 pandemic. However, the program faced numerous challenges, including a high volume of claims and widespread improper filings. These issues prompted the IRS to implement a processing moratorium in September 2023.

Since that time, the IRS has engaged in a comprehensive review to determine how to handle the ERC claims made prior to the moratorium. Their latest news release outlines their approach to handling the backlog of claims.

Review and identification of high-risk claims

During the review, the IRS categorized the claims into three risk levels: high-risk, unacceptable level of risk, and low-risk, each requiring a different approach.

The analysis revealed that 10% to 20% of the claims are classified as high-risk, showing clear signs of error. These high-risk claims will be denied in the upcoming weeks.

Enhanced scrutiny of medium-risk claims

The IRS has also identified a significant portion of claims, estimated between 60% and 70%, showing an unacceptable risk level. These claims will undergo additional scrutiny to improve the agency’s compliance review. As a result, the majority of claims will be subject to this extended review process, which may lead to delays in processing and notifications.

Low-risk claims: processing and payment timeline

The IRS recognizes that many small businesses are still waiting on legitimate ERC claims. Approximately 10-20% of these claims are considered low-risk, showing no signs of ineligibility.

The IRS will begin processing these low-risk claims, with the first payments expected to be disbursed later this summer. Priority will be given to the oldest claims, and the IRS will adjust any claims with calculation errors before payment.

The IRS has emphasized that no claims submitted during the moratorium period will be processed at this time.

Continued availability of the ERC withdrawal program

The IRS continues to promote the special ERC Withdrawal Program, especially in light of the large number of questionable claims revealed by the recent review. If you submitted an ERC claim in the past but believe you were ineligible for the credit, you can withdraw your claim if it has not been processed yet or if you haven’t cashed or deposited any ERC checks received. The IRS will treat the claim as though it was never filed, with no interest or penalties applied.

Compliance and advisory measures

The IRS cautions taxpayers who filed ERC claims that the process will take time. If you believe you have a legitimate claim, you do not need to take any action at this point and should wait for further notification from the IRS. The agency also advises against calling IRS toll-free lines, as additional information on these claims is generally not available while processing continues.

With that said, the ERC Withdrawal Program remains a viable option for those who suspect they may have submitted an ineligible claim. The IRS continues to urge taxpayers with pending claims to review the ERC guideline checklist and consult a trusted tax professional to review eligibility requirements.

If you have questions or concerns about our ERC cliam, contact our professionals.

Additional Services Subject to Kentucky Sales & Use Tax

Posted on February 15, 2023

Beginning January 1, 2023, several additional services are now subject to Kentucky sales and use tax. Businesses that offer these services to Kentucky-based customers must now collect the 6% sales tax on their invoices.

Businesses located outside of Kentucky but providing these services to customers located in Kentucky may also be required to collect sales tax under the state’s economic nexus statute.

Additionally, taxpayers receiving the benefit of these services in Kentucky are subject to a 6% use tax liability should the vendor not collect the sales tax on the invoice.

A $6,000 de minimis threshold found in KRS 139.470(23) applies to otherwise taxable services. Any provider of these new taxable services that exceeds $6,000 in gross receipts in 2021 or 2022 must be registered for the collection of the sales and use tax beginning on January 1, 2023.

Businesses can register for an account to remit tax to the Kentucky Department of Revenue here.

A complete list of the services now subject to sales/use tax is provided below. The Kentucky Department of Revenue has issued additional informal guidance on a number of these new services. Click on the links in the list for additional information.

An overview of the new services subject to tax, including other provisions in the new law, can be found here.

Additionally, the Department of Revenue is maintaining a website with frequently asked questions here.

Newly Taxable Services per KRS 139.200, effective January 1, 2023:

Body modification services, including tattooing, piercing, scarification, branding, tongue splitting, transdermal and subdermal implants, ear pointing, teeth pointing, and any other modifications that are not necessary for medical or dental health
Bodyguard services
Condominium time-share exchange services
Cosmetic surgery services– Excludes reconstruction of facial and body defects due to birth disorders, trauma, burns, or disease.
Executive employee recruitment services
Expanded definition of extended warranty services subject to tax
Facsimile transmission services
Household moving services
Interior decorating and design services
Labor and services to repair or maintain commercial refrigeration equipment and systems when no tangible personal property is sold in that transaction including service calls and trip charges
Labor to repair or alter apparel, footwear, watches, or jewelry when no tangible personal property is sold in that transaction
Lapidary services, including cutting, polishing, and engraving precious stones
Leisure, recreational, and athletic instructional services (additional information also here)
Lobbying services
Marketing services
Massage services, except when medically necessary
Parking services-Excludes any parking services at an educational institution.
Personal background check services
Personal fitness training services (additional information also here)
Photography and photofinishing services-Excludes photography services necessary for medical or dental health (additional information also here)
Prewritten computer software access services
Private investigation services
Private mailroom services-Includes presorting mail and packages by postal code, address barcoding, tracking, delivery to postal service, and private mailbox rental.
Process server services
Public opinion and research polling services
Recreational camp tuition and fees (additional information also here)
Rental of space for meetings, conventions, short-term business uses, entertainment events, weddings, banquets, parties, and other short-term social events (additional information also here)
Repossession of tangible personal property services
Residential and nonresidential security system monitoring services
Road and travel services provided by automobile clubs as defined in KRS 281.010
Social event planning and coordination services
Specialized design services, including the design of clothing, costumes, fashion, furs, jewelry, shoes, textiles, and lighting
Telemarketing services
Testing services, except testing for medical, educational, or veterinary reasons
Web site design and development services
Web site hosting services

Please contact John Rittichier, CPA at 502.882.8484 or jrittichier@hsccpa.com or Aaron Wilzbacher, CPA at 812.491.1322 or awilzbacher@hsccpa.com with questions regarding these new provisions.

Snow Day? Consider making it a Tax Organizer Day

Posted on February 3, 2022

Does ice or snow have you stuck at home? It’s a great time to organize your tax documents and get to your tax advisor. Even if you do not have all your information just yet, we can get started.

Below are a few reminders of key information as you gather your documents:

Stimulus and Advanced Child Tax Credits: Both items must be reconciled on your 2021 tax return and processing could be slowed down if the amounts reported do not agree to IRS records. To help with this process, the IRS began issuing letters earlier this month indicating the amounts received. Please retain these letters and include them with your tax information.

Identity PIN: If you were a victim of fraud or identity theft and received a PIN, you should have received a letter in the mail with your 6-digit PIN. Please include this information with your organizer.

IRA transactions: 1099s often do not tell the whole story. If you used part of your required minimum distribution for a qualified charitable distribution (QCD), please let us know the amount of the contribution and the charity to which it was paid. Also, if the distribution from your IRA was in fact a roll-over or ROTH conversion, we will need to know this as well.

Cryptocurrency and foreign transactions: Reporting has become more robust on the individual income tax return. Please note in your organizer or discuss with your tax advisor if you have these transactions.

Gifts to individuals: Gifts over $15,000 to an individual should be reported on a gift tax return. Please let us know and we can provide you with an additional questionnaire to capture the necessary information for reporting.

Stay safe and warm!

FASB Delays New Revenue Recognition Standard

Posted on July 21, 2015

The FASB has agreed to a one-year delay of the effective date for the new revenue recognition standard. Based on feedback from stakeholders and in light of forthcoming amendments to the new revenue recognition standard, the FASB agreed to push back the implementation dates to allow adequate time for effective implementation. While the IASB is considering a similar one-year deferral of the new revenue recognition standard, it has not released a final decision.

Key Provisions

Public Entities: The new revenue recognition standard is now effective for fiscal years and interim periods within those fiscal years that begin after December 15, 2017. For those who use a calendar year-end, the new revenue recognition standard applies in their 2018 interim financial statements.
Note: “Public entities” includes public business entities, not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market, and employee benefit plans that file or furnish financial statements with or to the SEC.

Non-public Entities: The new revenue recognition standard is now effective for fiscal years that begin after December 15, 2018 and interim periods within fiscal years that begin after December 15, 2019. For those who use a calendar year-end, the new revenue recognition standard applies to their 2019 annual financial statements and to their 2020 interim financial statements.

Early Adoption: Early adoption of the new revenue recognition standard is permitted except for entities reporting under U.S. GAAP who must wait to adopt the standard. These entities may not apply the new revenue recognition standard earlier than the original effective date for public entities or no sooner than 2017 for entities using a calendar year-end. All entities are permitted to adopt the new revenue recognition standard as early as annual periods beginning after December 15, 2016.

The delay is welcome relief for many as the implementation of the new revenue recognition standard requires substantial change for their organizations’ systems and procedures.

For questions or assistance in evaluating the appropriate implementation strategy, contact Greg Elpers, CPA, CCA at gelpers@hsccpa.com or 800.880.7800.

Obama Administration Delays Employer Mandate Penalties

Posted on July 12, 2013

On Tuesday July 3^rd, the Treasury Department announced that Obama administration is delaying until 2015 a requirement that many employers offer health insurance which is a major provision in the health care overhaul.

The change in the employer mandate is arguably the most significant adjustment the administration has made to date. Employers welcome this delay.

The delay until 2015 means that employers no longer need to provide an affordable health care policy to their employees that has a minimum value and includes specific benefits during 2014. Prior to this change, employers would have faced a penalty of either $3,000 or $2,000 per employee depending on specific circumstances.

The law requires companies that employ 50 or more workers to offer coverage or face fines. The Treasury Department and the White House said that, based on complaints by employers that the system for reporting the coverage was too onerous, they would simplify that system and give employers an additional year to comply.

Within the next week the Treasury department will issue official guidance to insurers, self-insuring employers and other parties that provide health coverage. Formal rules will be proposed later this summer.

The administration states that all other major aspects of the legislation will remain on schedule, including the individual mandate, state and federal health insurance marketplaces, and subsidy eligibility.