ERC claims on returns prepared by others raise questions for tax pros

By Martha Waggoner

In response to requests from tax practitioners, the Office of Professional Responsibility (OPR) has provided guidance on clients' claims for the employee retention credit (ERC) on returns prepared by others.

The OPR said in a bulletin published Tuesday that practitioners want to be sure that "they are meeting their Circular 230 professional responsibilities and the standards required to prepare and sign original tax returns, amended returns, or claims for refund" related to the ERC. The OPR administers and enforces Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10).

The OPR advised that to fulfill their professional obligations to clients and to tax administration, practitioners — attorneys, CPAs, and enrolled agents — must meet the applicable provisions of Circular 230.

"When a practitioner enters into an engagement with a client who has claimed the ERC, wants to claim it, or asks about the possibility, the practitioner needs to have or gain an in-depth knowledge of the credit, especially its eligibility criteria," the bulletin says. "The practitioner must also follow Circular 230's requirements of: (1) due diligence in the practitioner's advice and in preparing and filing returns (including the specific standards in [Circular 230] section 10.34); (2) full disclosure to a client of their tax situation; and (3) reasonable reliance on client-provided information and on any advice provided by another tax professional."

The ERC, which was established in 2020 by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, is a refundable tax credit for businesses that paid employees while they were shut down due to the COVID-19 pandemic or had significant declines in gross receipts for the period between March 13, 2020, and Dec. 31, 2021. Eligible taxpayers could claim the ERC on an original or amended employment tax return for periods within those dates. However, to claim the ERC for the fourth quarter of 2021, the taxpayer must be a recovery startup business, and, thus, for most employers, the credit ended on Sept. 30, 2021.

Tax practitioners have made inquiries to the OPR in the wake of several IRS warnings about third parties that promote improper ERC claims and that have caused some employers to claim excessive ERCs based on improper positions, the OPR said. The IRS also has urged affected employers to file amended returns to correct the incorrect ERC claims.

In addition, the IRS Criminal Investigation Division and the Justice Department have begun criminal investigations and, in some cases, sought indictments against promoters and other enablers of excessive ERC claims.

"If the practitioner cannot reasonably conclude (consistent with the standards discussed in this guidance) 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 OPR bulletin said.

Section 10.34(d) of Circular 230 allows a practitioner to generally rely, in good faith and without verification, on information from the client. But there are boundaries to that good faith, including that a practitioner cannot simply accept the client's information if that information appears to be incorrect, incomplete, or inconsistent. Instead, the practitioner must ask more questions to reconcile the facts, the OPR says.

Under Section 10.21 of Circular 230, if a practitioner learns that a current client did not comply with the ERC requirements in a prior tax year, the practitioner must promptly inform the client of the "noncompliance, error, or omission" and any penalties that may apply.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at

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