How to resolve tax disagreement with my CPA?

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dkoffer
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How to resolve tax disagreement with my CPA?

Post by dkoffer »

Hi Folks,

I'm having a bit of difficulty with my accountant and trying to figure out how to resolve.

I've been doing my own taxes as a schedule C business for a decade (single person business - just me). So I'm pretty comfortable doing taxes and understanding the rules. However, I recently switched to an S-corp for 2020 and would feel more comfortable with an accountant making sure I don't screw anything up.

2020 turned out to be a super unusual year due to COVID and related tax code changes.

I took out a PPP loan that was forgiven, and also plan to file for the Employee Retention Credit (ERC).

My accountant keeps on telling me that you cannot claim the ERC on the S-corp owner W2 wages. I've read the tax code, and believe they are wrong (I believe it only prohibits counting W2 wages to relatives of the owner), but the language isn't super obvious so I understand how different people could come to different conclusions. Moreover, most tax accountants and lawyers writing online seem to not have clear conclusions on this topic. So there's a fair bit of uncertainty.

I called the IRS business line and asked them to clarify the matter. The IRS agent I spoke with indicated that my interpretation was correct and that I could claim the ERC on the W2 wages that my company pays to me.

I circled back with my accountant and related the conversation (along with the IRS badge number, etc.), and they basically told me they don't care and still believe I'm wrong.

My intuition is that since the IRS is the ultimate arbiter of the tax code, their statements are correct. So I'm kind of puzzled and annoyed, and considering that I may need a new accountant. My thinking is twofold:

1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one. OTOH, maybe I'm just wrong here.

Am I wrong? Does the IRS statement not matter? How should I handle this?

Would appreciate any insights especially from any CPAs or folks who directly interact with CPAs.

I'd like to make sure my expectations are reasonable and I'm not missing something.

Thanks!
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Raybo
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Re: How to resolve tax disagreement with my CPA?

Post by Raybo »

I stopped using an accountant to do my taxes when he made mistakes that cost more to fix than the error. This made me a two-time loser-I paid his fee and ate his mistake. Ultimately, the IRS is the one who decides what the tax code says, not your accountant. Also, if the accountant makes a mistake, you pay for it.

If it were me, I'd direct the CPA to do my taxes my way. If s/he refuses, go to another accountant or do it yourself.

CPA's use software programs just like the rest of us. It isn't like they have special CPA powers to do tax returns.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
dodonnell
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Re: How to resolve tax disagreement with my CPA?

Post by dodonnell »

ERC is claimed on 941 form. Not your tax return. 941 is a form that is filed with quarterly payroll. The instructions, along with the worksheet to claim Employee Retention Credit, are pretty clear:

https://www.irs.gov/forms-pubs/about-form-941

If you file a 941, there are new provisions on the just updated form to have the IRS cut you a check for up to $7k for ERC for the quarter.

I would ask your CPA to point out anywhere in the instructions, worksheets, or form, where any "Owner" wages are not "Qualified Wages" for purposes of ERC? There is no distinguishing qualified wages based on ownership, just payroll. Search this document: https://www.irs.gov/pub/irs-pdf/i941.pdf

Don't make the mistake of assuming a CPA is, by default, an expert on tax. My experience with the Courts is that they first look to a Tax Attorney and then maybe an Enrolled Agent.
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cheese_breath
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Re: How to resolve tax disagreement with my CPA?

Post by cheese_breath »

I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
The surest way to know the future is when it becomes the past.
pshonore
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Re: How to resolve tax disagreement with my CPA?

Post by pshonore »

An ethical tax preparer should never sign a return if he believes it's incorrect.
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tfb
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Re: How to resolve tax disagreement with my CPA?

Post by tfb »

Don't know whether this is current, but ...

Employee Retention Credit
The Employee Retention Credit is available to employers of any size, including tax-exempt organizations. It also may be available to tribes, if they operate a trade or business. Self-employed people can't receive the credit for their own earnings but may be able to claim the credit for wages paid to their employees.
https://www.irs.gov/newsroom/who-qualif ... tax-credit
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sailaway
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Re: How to resolve tax disagreement with my CPA?

Post by sailaway »

Under section 206(c) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer has received a Small Business Interruption Loan under the Paycheck Protection Program (PPP). The eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.

Does this apply to you?
Topic Author
dkoffer
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Re: How to resolve tax disagreement with my CPA?

Post by dkoffer »

cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
Topic Author
dkoffer
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Re: How to resolve tax disagreement with my CPA?

Post by dkoffer »

@TFB

I'm not self-employed (schedule C). It's an S-corp with W2 wages.
sailaway wrote: Fri Apr 02, 2021 4:15 pm Under section 206(c) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer has received a Small Business Interruption Loan under the Paycheck Protection Program (PPP). The eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.

Does this apply to you?
Yes it does apply. My understanding is that if your W2 wages are $10K per quarter, and you get a $20K PPP loan in Q1 and Q2, then you cannot take any ERC in Q1 and Q2, because the $10K of wages is wiped out by the PPP loan forgiveness. But you could get the ERC in Q3 and Q4.
tibbitts
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Re: How to resolve tax disagreement with my CPA?

Post by tibbitts »

dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
I would not expect them to be consistent. You have to temper your expectations given how recent the changes are and how complex your situation is. Of course ideally they would always have the correct answers but as a practical matter I think that's expecting a little too much in this case.
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cheese_breath
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Re: How to resolve tax disagreement with my CPA?

Post by cheese_breath »

dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
No, not on my own experience. It's based on several accounts of others I've read on Bogleheads.
The surest way to know the future is when it becomes the past.
PuckMan93
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Re: How to resolve tax disagreement with my CPA?

Post by PuckMan93 »

cheese_breath wrote: Fri Apr 02, 2021 9:48 pm
dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
No, not on my own experience. It's based on several accounts of others I've read on Bogleheads.
CPA here. Agree with cheese_breath. I would never rely on something a representative relayed over the phone. We get wildly varying answers, and often they are just guesses. Even the IRS instructions, which get far more vetting, state clearly that they cannot be relied upon.
stan1
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Re: How to resolve tax disagreement with my CPA?

Post by stan1 »

Accountants are generally risk averse. Mostly that's for a reason: most see an audit or going to tax court as a expense not as a thrill.

Find another accountant, or do it yourself since you know how to read the tax code.

As for the IRS, the customer service reps are just that. They are not tax attorneys and with something new and complex like PPP forgiveness I would not expect them to know all the answers. Even If you call them, sound like you know what you are talking about, guide them to an answer, maybe only volunteer information that supports your position, they very well may go along with you rather than say "no".
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Re: How to resolve tax disagreement with my CPA?

Post by Vanguard Fan 1367 »

dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
I have heard some years ago that a fairly high percent of the time the IRS gave incorrect answers.
John Bogle: "It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."
nalor511
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Re: How to resolve tax disagreement with my CPA?

Post by nalor511 »

Just to post my experience, one year I paid an excess of $ ($12k) in AMT , due to some very unusual circumstances. The next year, I was not subject to AMT. I had about 4 detailed back and forth borderline arguments with my CPA before finally getting my current-year tax return revised with a $10k+ prior year AMT credit on form 8801. I had already done the return myself with software, so I knew I was due this credit, and had (prior to this) done a lot of research on the internet, which was how I found out about it in the first place.

So, accountants make mistakes, usually due to an incomplete understanding of your situation, but possibly also due to being frazzled during tax season, or (as in your case) disagreement or misunderstanding of the tax code (who knows which, or who's right). If you don't like the way your accountant is handling it, switch. I never went back to mine after that interaction.
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unclescrooge
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Re: How to resolve tax disagreement with my CPA?

Post by unclescrooge »

dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
Not only can you not trust them, they are also not the authority on tax code. https://www.forbes.com/sites/robertwood ... authority/
:oops:
clemrick
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Re: How to resolve tax disagreement with my CPA?

Post by clemrick »

unclescrooge wrote: Sat Apr 03, 2021 2:26 pm
dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
Not only can you not trust them, they are also not the authority on tax code. https://www.forbes.com/sites/robertwood ... authority/
:oops:
I went to an IRS Tax Forum a couple years ago and one of the IRS presenters did state that depending on what an IRS agent told you over the phone was NOT a defense in a tax dispute.
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Re: How to resolve tax disagreement with my CPA?

Post by coachd50 »

dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
I think you will find that Federal Agencies are far from consistent in matters such as this. It is extremely common to hear about the IRS, Social Security office, Veterans Affairs etc giving multiple different answers to the same situations/questions.
Golfer--
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Re: How to resolve tax disagreement with my CPA?

Post by Golfer-- »

S Corporation, more than 50% owners are not eligible for ERTC. Yes, it is hard to find this information. But it us out there.
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celia
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Re: How to resolve tax disagreement with my CPA?

Post by celia »

OP, If this doesn't impact your 2020 taxes, at least get the taxes done, while you figure out your next steps.
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Re: How to resolve tax disagreement with my CPA?

Post by ModifiedDuration »

PuckMan93 wrote: Sat Apr 03, 2021 9:52 am
cheese_breath wrote: Fri Apr 02, 2021 9:48 pm
dkoffer wrote: Fri Apr 02, 2021 7:49 pm
cheese_breath wrote: Fri Apr 02, 2021 1:58 pm I wouldn't trust anything the IRS says. Call them five times, and you'll get seven different answers.

But I do agree with what you say here.
dkoffer wrote: Fri Apr 02, 2021 10:44 am 1) If my accountant isn't comfortable with something I plan to do, then we probably shouldn't work together.
2) If my accountant is basically ignoring me, then maybe I need a different one....
Interesting. That's based on your experience?

I would expect them to be pretty consistent!
No, not on my own experience. It's based on several accounts of others I've read on Bogleheads.
CPA here. Agree with cheese_breath. I would never rely on something a representative relayed over the phone. We get wildly varying answers, and often they are just guesses. Even the IRS instructions, which get far more vetting, state clearly that they cannot be relied upon.
Another CPA here. Agree with Puckman93.

For the decades that I have been a CPA, the IRS has always been explicit that information received over the phone from them is not to be relied upon and will not hold up in a tax dispute.
Sometimesrunner
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Re: How to resolve tax disagreement with my CPA?

Post by Sometimesrunner »

On the Reddit tax pros board, this question was broached and the board was split. The AICPA has actually requested clarification on this exact topic because it is unclear to most professionals. I would sit tight and wait for a response from the IRS.
RIMDBogle
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Re: How to resolve tax disagreement with my CPA?

Post by RIMDBogle »

Thanks for opening this thread.
ERC is claimed on 941 form. Not your tax return. 941 is a form that is filed with quarterly payroll. The instructions, along with the worksheet to claim Employee Retention Credit, are pretty clear:

https://www.irs.gov/forms-pubs/about-form-941

If you file a 941, there are new provisions on the just updated form to have the IRS cut you a check for up to $7k for ERC for the quarter.
What is the schedule/line number for this ERC claim?

I did not see up to $7k for ERC for the quarter reference in 941 instruction. What is the line number, you are referring here?

S Corporation, more than 50% owners are not eligible for ERTC. Yes, it is hard to find this information. But it us out there.

It is interesting. Where did you pick this info ?

Thanks for sharing.
dodonnell
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Re: How to resolve tax disagreement with my CPA?

Post by dodonnell »

Sorry for the delay, i did not realize this reply was directed at me:
What is the schedule/line number for this ERC claim?

I did not see up to $7k for ERC for the quarter reference in 941 instruction. What is the line number, you are referring here?

S Corporation, more than 50% owners are not eligible for ERTC. Yes, it is hard to find this information. But it us out there.

It is interesting. Where did you pick this info ?

Thanks for sharing.
ERC is claimed on the updated 941 form from IRS and can be found here: https://www.irs.gov/pub/irs-pdf/f941.pdf (F941)

941 Page 1: Line 11c: ERC non-refundable credit amount (reduces payroll taxes owed for the quarter)
941 Page 2: Line 13d ERC refundable credit amount (gets added to payroll taxes deposited for the quarter)

... use Worksheet 1 on page 20 of the IRS 941 Instructions pdf to calculate 11c and 13d: https://www.irs.gov/pub/irs-pdf/i941.pdf (I941)

The detailed instructions from the IRS walk you through each item on the Worksheet 1 for ERC. If claimed, ERC will be effected on this form as a credit and/or additional refund at the end of the form.

Hope this helps. dan
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dkoffer
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Re: How to resolve tax disagreement with my CPA?

Post by dkoffer »

Yeah it seems like there's an awful lot of confusion:

http://email.bradfordtaxinstitute.com/t ... C33F5F1913& says it's ok.

I read the actual tax code and it seems pretty obvious to me that the law explicitly prohibits counting wages to related individuals, but counting wages for the owners is perfectly oK.
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vitaflo
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Re: How to resolve tax disagreement with my CPA?

Post by vitaflo »

As my accountant says when we discuss tax law that seems to have a gray area, "there's a reason tax lawyers exist". The laws are not always black and white, as seems to be the case here. Usually if these kinds of situations come up with my accountant we discuss the rules on the books and attempt to come to consensus on how we read the law. We may end up wrong, but if I'm audited we at least have a rationale on how we read the law. The IRS may say how we read it isn't right, but you're not going to get a penalty if you can show a reasonable rationale of why you did what you did, and I think that's the most important part.

I would also concur that I wouldn't take tax advice from IRS phone support. Read the law, apply it to your best judgement, and if you get audited take it up with the auditor.
RIMDBogle
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Re: How to resolve tax disagreement with my CPA?

Post by RIMDBogle »

@dodonell
ERC is claimed on 941 form. Not your tax return. 941 is a form that is filed with quarterly payroll. The instructions, along with the worksheet to claim Employee Retention Credit, are pretty clear:

https://www.irs.gov/forms-pubs/about-form-941

If you file a 941, there are new provisions on the just updated form to have the IRS cut you a check for up to $7k for ERC for the quarter.
Thanks for weighing in.

It was a good call. I did review the instructions and I see $7K for ERC (Max) for 2021 Q1. It was $5K for 2020 Q2 to Q4.

What was the rational behind this change?

What will be the impact on SS & Medicare, if the contribution cut like this ?

Thanks for sharing.
dodonnell
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Re: How to resolve tax disagreement with my CPA?

Post by dodonnell »

I don't believe I have the expertise on SS and Medicare to answer with very high confidence.

However, it appears the Employee will still receive full credit for Wages subject to Social Security and Medicare for the purposes of calculating SS benefit. They employee should receive no impact. The benefit is to the Employer.

Social Security benefit is calculated using wages earned subject to SS, not on amount of taxes paid
https://www.ssa.gov/oact/cola/Benefits.html
oldfort
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Re: How to resolve tax disagreement with my CPA?

Post by oldfort »

dkoffer wrote: Fri Apr 02, 2021 10:44 am Am I wrong? Does the IRS statement not matter? How should I handle this?
Thanks!
Unless it's documented in writing, so a private letter ruling, conversations withe the IRS don't mean much.
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