LOS ANGELES, CA / ACCESSWIRE / April 30, 2023 / The Employee Retention Credit (ERC) tax refund for attorneys, lawyers, law firms, legal practices, and other professional legal service type businesses provides a valuable tax refund from the Internal Revenue Service (IRS). Almost all law firms in every state qualify a portion of the eligibility period due to mandated court shutdowns, suspension of court operations and jury trials, that happened in every federal, state, county, or local city government judicial court system. Even if your firm revenue didn't decline, or it even increased, under the closure and partial shutdown rules, most law firms may still qualify for up to a $26,000 to $33,000 tax refund per attorney, lawyer, paralegal, and other employees on the firm's payroll in 2020 and 2021.
How Most Law Firms Qualify for the Employee Retention Credit (ERC)
All law firms may be eligible to claim the employee retention tax credit in 2022, 2023, and even 2024, "if" they qualify any portion of time between March 13, 2020 to September 30, 2021 for law firms that were around prior to the COVID pandemic. For law firms and legal practices that were started or purchased after February 15, 2020, those law firms are eligible from the time their legal practice opened until December 31, 2021. These types of law firms and attorney law practices are also referred to as a recovery startup business, and qualify for the 4th quarter of 2021.
Two Key Ways Law Firms Can Qualify for the Employee Retention Tax Credit (ERTC)
Law firms only need to qualify a quarter or portion of time for the $26k employee retention credit in one, of two possible ways.
1. The first way an attorney or law practice can qualify is if it experienced a full or partial shutdown due to COVID-19 government regulations or any other government-mandated shutdown or disruption of operations during specific periods in 2020 or 2021 due to the pandemic.
From the government mandated shutdown or start date of law firm operation capacity restrictions or judicial court system operation disruptions, to the end date when those same restrictions were fully lifted, your legal practice qualifies for the law firm ERC credit and tax refund.
A law firm did not have to be fully shut down to qualify. It could have been only partially shut down due to courts shutting down, courts suspending operations, or courts limiting hours of operation and capacity. All of these issues clearly impacted most, if not all law firms and attorney practices nationwide, depending on the type of law they practiced.
2. Or, the second way a law firm can qualify for the ERTC tax credit is if it has experienced a significant decline in gross receipts compared to one of two prior years (2019 versus 2020 or 2021). A decline in gross receipts is significant when the decline is more than 50% in 2020 as compared to the same quarter in 2019, or 20% in 2021 compared to the same quarter in 2019. In clear terms, you have to compare the same quarters of 2020 and 2021 with 2019.
If you are a law firm partner or owner and paid wages to less than 100 employees in any quarter in 2020 (500 employees or less in 2021), those payroll gross wage numbers and salaries will be counted towards the ERC tax credit, regardless of whether they were full-time or part-time.
The rules get tricky if you paid more than 100 law firm employees in any quarter in 2020, or paid more than 500 employees in any quarter in 2021.
ERC Warning: Many CPA's, Accounting Professionals, Tax Preparers, and Financial Planners Are Wrongly Advising Their Legal Firm Clients They Do Not Qualify for the Employee Retention Credit
The unfortunate mistake for some law firm partners and principals, many may have been given bad advice by their accountant, CPA, tax preparer, bookkeeper, financial planner, or other well-meaning tax professional.
The main reason this is occurring is their accounting, tax, or financial professional did not take the time to fully educate themselves on the complex and confusing employee retention credit program for themselves or their legal clientele.
"Your law firm didn't have to be fully shut down to qualify. It could have been only partially shut down. And this is easy for many law firms to prove this, due to all the court system shutdowns and limited courthouse hours and capacity restrictions. If your Accounting, Tax, Legal, or Financial Professional told you that your legal practice does not qualify, without first having done a thorough deep-dive analysis, they are completely wrong and do not fully understand the comprehensive current guidelines for the Employee Retention Credit (ERC) program," said Marty Stewart, Chief Strategy Officer (CSO) with Disaster Loan Advisors (DLA).
How a Certified Public Accountant (CPA) Would Have Cost Their Law Firm Client to Miss Out on a $352,410 Employee Retention Tax Credit Refund
"We had a law firm client come to us who asked why their Certified Public Accountant (CPA) rendered the opinion they didn't qualify, nor should file, for the ERC credit. After doing a deep-dive analysis, it was obvious their CPA was completely wrong! Their CPA would have cost their legal client a by-the-book ERC refund worth $352,410," said Stewart.
In 2020 and 2021, the law firm received two Paycheck Protection Program (PPP) loans totaling over $450,000+ that had been forgiven by the SBA. In prior IRS rulings, PPP loans disqualified a business from claiming the ERC credit. Great news is that has changed since then. With current ERC rules, law firms and legal practices that did receive PPP loans still may qualify, as long as the PPP loans are deducted properly from the ERC credit calculations.
From late March 2020, not due to a mandated closure, however, due to mandated government court operation restrictions on courtroom and legal proceedings that lasted well into April 2021, they were eligible to receive an Employee Retention Credit Tax Refund totaling $352,410!
This broke down to $78,462 in 2020 and an additional $273,948 for 2021. That's a total of $352,410 in ERC credits, an actual tax refund check received from the IRS. And this was after correctly subtracting out over $450,000+ in PPP loans, and removing majority owners and family members.
"That is a substantial amount of money the law firm would have lost if they would have trusted the wrong advice from their CPA. Instead, they sought out Disaster Loan Advisors' second opinion and expert help in fully understanding how to take advantage of the ERTC for their law firm. Their ERC refund claim was correctly qualified and calculated by-the-book, exactly how the IRS designed the ERC program to be followed," said Stewart.
Are Law Firms and Legal Practices Able to Claim the Employee Retention Credit if They Received SBA Paycheck Protection Program (PPP) Loans?
Prior IRS rulings, disqualified the business from claiming the ERC credit. Great news is that it has changed. With current ERC rules, law firms that did receive PPP loans still may qualify, as long as the PPP loans are deducted properly from the ERC credit calculations.
Will Attorneys, Lawyers, and Law Firms Qualify for the Employee Retention Credit if They Didn't Suffer a Large Financial Decline or Even Increased Revenue?
Yes they can, as the Gross Receipts Test (GRT) is only one of two ways to qualify a quarter. Most law firms experienced disruptions to their legal practices solely through having the judicial court system operations disrupted, which in turn, greatly affected their normal way of doing business, if it wasn't for the pandemic.
Is There a Difference Between the Employee Retention Credit (ERC) and the Employee Retention Tax Credit (ERTC)?
Both the employee retention credit (ERC) and the employee retention tax credit (ERTC) are actually one in the same. The ERC or ERTC are actually the same program from the Internal Revenue Service (IRS) and the terms are used interchangeably.
If a Law Firm Was Closed, is it Still Eligible for the Employee Retention Credit?
Depending on circumstances, closed law firms or law practices may be eligible for partners and owners to retroactively claim during the qualification period in 2020 and 2021. The employee retention credit is claimed by filing IRS Form 941-X which is amending quarterly payroll from the past. Law firm owners and partners are able to go back and claim the ERC in certain circumstances, even though they closed or sold their law practice office location.
Would Attorneys or Law Firm Partners Who Sold Their Law Office Qualify for the Employee Retention Credit?
Law firms that were sold during the eligibility period in 2020 and 2021, might also qualify, up until the date they were sold. Law firm partners are able to retroactively claim the ERC for their past legal practices under certain circumstances.
Law Firms Beware: Employee Retention Credit Companies Charging a Contingency Fee on Your ERC Tax Refund
Law firms, attorneys, and lawyers are reporting receiving many calls and emails from companies claiming to be Employee Retention Credit experts. An overnight industry has been created around the Employee Retention Credit. Some ERC companies will have legal practice owners and partners sign lengthy page agreements, will charge them no money upfront, and then wait to get paid once the business receives their ERC tax refund check. Sounds good in theory until owners and partners realize how much in excessive fees they really end up paying.
What many law firm owners do not realize is that they are overpaying on an excessive scale. Some of these ERC fee levels may rival corporate level fee structures, or big company pricing. Yet, for many attorneys, they could be paying 5x to 25x more than they really need to.
Law firm partners feel these percentage-based contingency fees are very expensive. There have been numerous instances of lawyers being quoted a percentage of their estimated ERC Employee Retention Credit tax refund. Or, where the fee levels are so excessive, they fall in the range of 20% to 30% of the law firm's ERC tax refund.
For example, if a law firm or legal practice was qualified to receive a $100,000 Employee Retention Credit tax refund, and they engaged with a company charging them 30% (or fee equivalent) of their refund, this would be $30,000 the law firm would be paying right off the top. This is a very excessive fee for the small amount of tax work required to process the refund.
IRS Rules State Charging a Contingent Fee or Percentage % of a Tax Refund is Not Permissible
Even though many companies out there performing ERC services are charging a percentage of a client's Employee Retention Credit refund, they are knowingly, or unknowingly, running afoul of IRS rules and regulations.
The IRS is very clear on this point. It can be found on page 21 of the Regulations Governing Practice before the Internal Revenue Service, Treasury Department Circular No. 230 (Rev. 6-2014), Catalog Number 16586R, under Section 10.27 Fees.
The IRS clearly states, "A practitioner may not charge a contingent fee for services rendered in connection with any matter before the Internal Revenue Service. A contingent fee includes a fee that is based on a percentage of the refund reported on a return, that is based on a percentage of the taxes saved, or that otherwise depends on the specific result attained.
Judicial System Courts That Were Shutdown During the Pandemic
What were the court systems that were shutdown or partially shutdown during the pandemic? Here is a comprehensive list of judiciary court systems that were either shutdown for periods of time, and / or significantly altered their court operations that greatly affected the majority of law firms and legal professionals from doing their jobs efficiently, if it wasn't for the disruptions caused by the COVID-19 pandemic.
- United States District Court
- U.S. Supreme Court
- Circuit Court
- District Court
- Trial Court
- Superior Court
- City Court
- Family Court
- Probate Court
- United States Court Of Appeals For The Federal Circuit
- Labor Court
- County Court
- Constitutional Court
- Lower Court
- Domestic Violence Court
- Mental Health Court
- Administrative Court
- Admiralty Court
- Appellate Court
- United States Courts Of Appeals
- Supreme Court
- High Courts
- General District Court
- Tax Court
State Bar Associations Affected by COVID Government Shutdowns
What state bar association legal members were affected during COVID? Most attorneys and lawyers are members of the American Bar Association (ABA), and also members of their local or state bar associations in their law practice area. Here is a complete list of Bar Associations and members that were affected during the pandemic.
- Alabama State Bar
- Alaska Bar Association
- American Samoa Bar Association
- State Bar of Arizona
- Arkansas Bar Association
- State Bar of California
- Colorado Bar Association
- Commonwealth of the Northern Mariana Islands (CNMI) Bar Association
- Connecticut Bar Association
- Delaware State Bar Association
- The District of Columbia Bar
- The Florida Bar
- State Bar of Georgia
- Guam Bar Association
- Hawaii State Bar Association
- Idaho State Bar
- Illinois State Bar Association
- Indiana State Bar Association
- Iowa State Bar Association
- Kansas Bar Association
- Kentucky Bar Association
- Louisiana State Bar Association
- Maine State Bar Association
- Maryland State Bar Association
- Massachusetts Bar Association
- The State Bar of Michigan
- Minnesota State Bar Association
- The Mississippi Bar
- The Missouri Bar
- State Bar of Montana
- Montana Trial Lawyers Association
- Nebraska State Bar Association
- State Bar of Nevada
- New Hampshire Bar Association
- New Jersey State Bar Association
- State Bar of New Mexico
- New York State Bar Association
- North Carolina State Bar
- State Bar Association of North Dakota
- Ohio State Bar Association
- Oklahoma Bar Association
- Oregon State Bar
- Pennsylvania Bar Association
- Colegio de Abogados y Abogadas de Puerto Rico (or, Bar Association of Puerto Rico)
- Rhode Island Bar Association
- South Carolina Bar
- State Bar of South Dakota
- Tennessee Bar Association
- State Bar of Texas
- Utah State Bar
- Vermont Bar Association
- Virgin Islands Bar Association
- Virginia State Bar
- Washington State Bar Association
- West Virginia State Bar
- State Bar of Wisconsin
- Wyoming State Bar
About Disaster Loan Advisors Employee Retention Credit (ERC) Services for Law Firms, Attorneys, Lawyers, and Legal Practices
Disaster Loan Advisors (DLA) is a trusted team of financial tax professionals and Employee Retention Credit (ERC) consulting specialists dedicated to saving businesses from lost sales, lost customers and clients, lost revenue due to financial and economic harm caused by the COVID-19 / Coronavirus disaster, Delta and Omicron variants, and other recession and inflation downturns in the economy.
Having worked with over 1500+ business clients navigate the SBA Economic Injury Disaster Loan (EIDL), Paycheck Protection Program (PPP), and Restaurant Revitalization Fund (RRF) programs, DLA further refined its expertise in the ERC Tax Credit IRS program having assisted more than 700+ companies with their ERC Claims. Assisting ownership groups with multiple business entities, multiple location business owners, and other complex situations that require an expert tax and accounting strategist to be brought in to assess the situation and create the most strategic path forward.
DLA further specializes in another key pandemic-era SBA / IRS program where business owners are leaving a lot of relief fund money on the table. It is the often misunderstood and confusing Employee Retention Tax Credit (ERC) / Employee Retention Tax Credit (ERTC) program whereby company owners and partners can retroactively receive up to $26,000 to $33,000 back for each W-2 employee they had on payroll for the 2020 and 2021 tax filing years. Done correctly, these tax credits or cash refunds can be claimed retroactively for up to 3 years.
It's encouraged that business owners obtain professional assistance in going through the complex 941-X amended filing process to help your company maximize the full value of the ERC Credit Program, while staying safe and compliant within the complex IRS rules and regulations for claiming the ERC Credits.
DLA doesn't charge a percentage (%) of your ERC refund like many companies are charging. Instead, DLA works on a reasonable professional flat-fee basis. If you are looking for an ERC company that believes in providing professional ERC services and value for small business owners, in exchange for a fair, reasonable, and ethical fee for the amount of work required, Disaster Loan Advisors is a good fit for you.
Need Strategic Employee Retention Credit Guidance for Your Company or Law Firm?
CONTACT:
Disaster Loan Advisors
Elena Goldstein
Director of Media Relations
877-463-9777 ext. 3
elena.goldstein@disasterloanadvisors.com
Connect with Disaster Loan Advisors via Social Media:
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For an Employee Retention Credit Deep-Dive Analysis for Your Law Firm, Visit:
https://www.disasterloanadvisors.com/erc
SOURCE: Disaster Loan Advisors (DLA)
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