ERTC Update: Incorrect Claims, New Tax Bill, and More!

The IRS continues to crack down on incorrect ERTC claims and recently released an update shining a light on 7 warning signs of incorrect claims.

On this special bonus episode of The Bottom Line Pharmacy Podcast, Scotty Sykes, CPA, CFP, and Bonnie Bond, CPA bring you tax updates that matter for your pharmacy including updates on ERTC, a new tax bill that may affect compounding pharmacies, changes in 1099s, and more!  

Join the discussion with us below! 

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If you prefer to read this content, the video transcript is below:

Scotty Sykes: Good morning, everybody. Welcome to another episode of… 

Bonnie Bond: To another episode of The Bottom Line Pharmacy Podcast. 

Scotty Sykes: This has gotta be pushing like 40 or 50 episodes. 

Bonnie Bond: It’s a lot. We don’t keep track. We need to go back and look.  

Scotty Sykes: I still don’t really know. We’re Accountants and were not counting our episodes. 

Bonnie Bond: Got a nice no guest today just an update on some tax season items. 

Scotty Sykes: Yeah, you know, we are an Accounting Firm and CPA nerds. So, if you’re watching our podcast, we are going to talk about some of these nerdy things that we do every day.   

Bonnie Bond: They’re important though. 

Scotty Sykes: This is one of those episodes, I reckon.   

Bonnie Bond: Well, let’s talk about your drink, since we’re in the beginning. I saw you sippin some, what, tea there, Scotty? Thought you normally are a coffee guy.   

Scotty Sykes: Yeah, I switched to tea.   

Bonnie Bond: Gettin a little fancy on us? 

Scotty Sykes: It’s not bad, just switching it up. I told Linda, I was like “Linda, will you please get some tea for the room?” And I was just thinking one little box of tea, right? Just, 20 pack or whatever. I got like a 300 pack over here. 

[Laugh Break] 

Bonnie Bond: It’s like a Costco. She probably sent your dad.   

Scotty Sykes: So, I got a lot of tea to drink over here. I’ll be drinking tea probably for the next two years over here 

Bonnie Bond: Alright. Alright. I just noticed it was different. 

Scotty Sykes: I do miss my coffee. I’m probably going to be switching back here in a little bit. Well, I just mixed it up. 

Bonnie Bond: Well, you’ll forever have a stash there in the back. If you change again. All right, what kind of updates do we have? Anything with my favorite topic, ERTC?   

Scotty Sykes: Oh, yeah, your favorite topic. There’s always stuff going on there. 

Bonnie Bond: It’s supposed to be done. It was supposed to be shut down complete, but here we are. 

Scotty Sykes: Well, here’s the deal. They…So, they froze the program back in September last year, was it? 

Bonnie Bond: Right. 

Scotty Sykes: Because of the fraud. And then in December, they opened a voluntary disclosure program. And what that did, it goes until March 22nd. 

Bonnie Bond: That sounds right. 

Scotty Sykes: So, you have until March 22nd to go through the voluntary disclosure program. As a matter of fact, I’m going to read it. For anyone that filed a claim in error and received a payment, the disclosure program allows businesses to repay just 80%of the claim with the assumption that 20% went to a third party. 

Bonnie Bond: That it was accurate. Yeah. 

Scotty Sykes: Taxpayers who filed a claim previously that hasn’t been processed should also review the guidelines and quickly pursue the claim withdrawal process if they now see their claim is ineligible. So, the voluntary disclosure program is out there if you feel like maybe, you got pressured into it from a third party, you’re not sure you’re qualified. So, you have that option up until March 22nd. 

Bonnie Bond: Interesting they’re only expecting 80% back. I mean, I understand the theory behind it, but are they going to try to get that other 20 back from the people who pushed it for their fees or no? They just… 

Scotty Sykes: I don’t know… 

Bonnie Bond: Get that money? Hmm. 

Scotty Sykes: But there’s definitely some programs to raise flags on promoters too. That’s definitely going… 

Bonnie Bond: They’re definitely giving people some time to reevaluate their decision… 

Scotty Sykes: Yeah. 

Bonnie Bond: To move forward with it. 

Scotty Sykes: This is kind of… 

Bonnie Bond: A last effort. 

Scotty Sykes: This is the IRS being nice. Which they normally don’t do, play nice. So, this is a gift from the IRS. So, if you really do feel like maybe you don’t qualify here, this is your chance to get in on that. 

Bonnie Bond: You’ve been losing some sleep at night 

Scotty Sykes: Yeah, this is your chance because these things can be audited up to 10 years, so this is gonna be, it’s gonna be a lot of trouble down the road for a lot of businesses. 

Bonnie Bond: But, Scotty, I still have some people sending, emails with, asking, still trying to apply. 

Scotty Sykes: Yeah. Yeah. So, this program is really a gift, and the IRS actually, Bonnie, came out with this week. The IRS shares seven warning signs on ERC claims that may be incorrect. Urges businesses to revisit eligibility. Solve issues now before March 22nd, which is the Voluntary Disclosure Program deadline. The seven suspicious signs are too many quarters being claimed. 

Bonnie Bond: Hmm. 

Scotty Sykes: Qualifying for all quarters is uncommon. This could be a sign of an incorrect claim. So, all quarters, you’re getting all quarters, that’s a…That’s a red flag. I could see maybe a pharmacy, maybe, getting a quarter or two or something like that, but all quarters, that’s going to be a flag. Government orders that don’t qualify. So, those are orders that are not eligible orders. OSHA rules, you got to wash our hands or whatever. Those are not government orders. Of course, they have, the government order has to partially suspend the business. And you have to show that the suspension had a more than nominal impact to the pharmacy. So that could be, that’s where it’s really going to get tough to… 

Bonnie Bond: That’s that gray area. 

Scotty Sykes: Blame where you qualify because you have to use hard numbers to show you’ve had a more than nominal impact.   

Bonnie Bond: And Scotty, again, I know we’ve, this is like what episode 5 on ERTC, but you know a lot of these third parties I’ve seen some of these that come from they’re…Their “documentation” that they send along with it is really just the government order or the order from that local whatever. That’s it. There’s no detail about the exact reason for the shutdown. 

Scotty Sykes: Oh exactly. Yeah, I mean… 

Bonnie Bond: That’s not enough. 

Scotty Sykes: I saw a government order where here in North Carolina, one had us review what a third party put together, and the government order said they, that the business was required to shut down, and that was not…. 

Bonnie Bond: Not even the case. Yeah. 

Scotty Sykes: Not true. So, they had just probably, third party took a government order, snipped from another ERTC claim they did, and just plopped it into this pharmacy and…Yeah. Wrong calculations, too many employees. I have seen some calculation issues because you have PPP that comes into play. You can’t do PPP and ERTC on the same thing. 

Bonnie Bond: And that. No double dipping. Yep. 

Scotty Sykes: I’ve seen some of that. Supply chain issues is a red flag. Let’s see. Businesses claim an ERC for too much of a tax period. So, that’s pretty much saying you only claim the ERC for the period you were partially suspended. So, for example, we did a restaurant. We have a local restaurant we helped out with. And we did the ERC, but we did the ERC through a certain middle of the month date where we could justify the partial suspension. 

Bonnie Bond: Right. 

Scotty Sykes: And we didn’t take that whole quarter. So, you see what I’m saying? 

Bonnie Bond: Mhm. 

Scotty Sykes: Like, you only take where you are eligible for… 

Bonnie Bond: What makes it yeah. 

Scotty Sykes: I have not seen a third party do that. They just take the whole quarter. 

Bonnie Bond: The whole thing. Yep. 

Scotty Sykes: Of course, there’s some. Where the business didn’t pay wages or didn’t exist. They’ve been getting some claims on that. And then the promoters are saying “there’s nothing to lose. Everybody’s doing it.”  That’s another warning sign. So, you have the voluntary disclosure program out there, y’all. Just, if it’s something you feel like you need to explore, check it out, just type in IRS voluntary disclosure program in Google search and it’ll pop right up. 

Bonnie Bond: Hey, did you see the Superbowl?  

Taylor Swift. I don’t get it. Not my cup of tea. 

Scotty Sykes: Of course. Who didn’t? 123 million people watched it or something, TV or something. 

Bonnie Bond: Crazy. 

Scotty Sykes: I don’t know. It’s a lot. 

Bonnie Bond: Not going to bring up why… 

Scotty Sykes: Why? 

Bonnie Bond: It’s Taylor. 

Scotty Sykes: …Taylor Swift. 

Bonnie Bond: I should have worn my shirt. But it would, I had a t shirt for the event. 

Scotty Sykes: Taylor Swift. I don’t get it. Not my cup of tea. 

Bonnie Bond: It was a good game. I had a bunch of teenagers at my house. It was fun. It was very loud.  

Scotty Sykes: It was a good game.   

Bonnie Bond: It was. 

Scotty Sykes: I knew the Chiefs were gonna take it. 

Bonnie Bond: You had the confidence for that…in Mahomes. 

Scotty Sykes: Yeah, I mean, I’m not gonna bet against Mahomes. He’s too good.  He’s too good. 

Bonnie Bond: All right, the new bill. A new tax bill, Scotty. 

Scotty Sykes: Oh, gosh. Yeah, there’s also a new tax bill floating around. So, there’s a new tax bill that passed the House in late January. In fact, we’re gonna get an update today from our industry, CPA industry, on where this is. We should have probably held off until we got that update, Bonnie. Anyway. 

Bonnie Bond: We can have an update to the update. 

Scotty Sykes: We’ll have an update to the update. New tax bill passed the House, went to the Senate. Don’t know the status of that, but they’re thinking maybe by early March, that could pass there. And in there is that they’re going to completely shut down the ERC program. So no, no more claims or nothing. Shut that down. And that’s going to help “pay” for a lot of stuff in the bill. And one of the big things in there is bonus depreciation. There’ll be some retroactive tax changes, which we love. 

Bonnie Bond: I was going to say, if anyone thinks that we have it easy in our occupational line of work, you can see how they are dumping tax changes on us during tax season potentially and this happens a lot. 

Scotty Sykes: They might. 

Bonnie Bond: And retroactively things that you have to go back and amend tax returns for so…just throwing that out there. It’s a lot of fun. 

Scotty Sykes: So, one of the big ones is the bonus depreciation. It was 80% right off last year You still had 179 but bonus is out there and there’s can be some differences between the states and maximizing that. And so they’re gonna go back and maybe take that to 100 percent write off. 

Bonnie Bond: Yeah.   

Scotty Sykes: So, we’ll have to see what happens there. And then the other thing was Section 174. So, if you did any R&D, tax credits, any compounding or anything like that, you have to navigate Section 174. Which essentially is a tax increase, this is exactly what it was, but you have to take those R&D expenses and put them on your balance sheet and take them off your profit and loss statement. And what that does is that, makes your income go higher because you’re taking expenses off the P&L and putting them on the balance sheet, and if you write it off over five years, you don’t get that immediate deduction. So, that was a tax increase and that is still in the tax law today. So, maybe if there’s some compounders out there, you’re doing some R&D type work and you’re claiming R&D tax credit, you better be aware of that. Cause that became law last year, last tax season, 2022 tax year. 

Bonnie Bond: Yep. There’s a lot of work that goes into getting that. 

Scotty Sykes: And it’s still applied here today for ‘23 tax season, unless this bill passes, they’re gonna do away with that and allow you to expense it. So, that’s a big one. 

Bonnie Bond: So, would that mean the ones that we did that for last year, we would go back? Or is that moving forward? 

Scotty Sykes: I think that would be a 3115 you would do for that.   

Bonnie Bond: Oh dear. 

Scotty Sykes: So, that’s a big one that nobody talked about. 

Bonnie Bond: That’s a big…Yeah, yeah, yeah. 

Scotty Sykes: Nobody talked about it. 

Bonnie Bond: Because I know a couple, I had a couple that I had to do that for last year, and it really increased revenue a bit. Makes a big difference.   

Scotty Sykes: Mhm. It did. 

Bonnie Bond: Yep. 

Scotty Sykes: So, that one’s out there. Hopefully, that’s the one I’m most worried about because we got some clients that do R&D tax credits. 

Bonnie Bond: Yep. 

Scotty Sykes: And they’re having to navigate this stuff. Even if you don’t do R&D tax credits, this Section 174 still applies. And there’s no electing out or nothing like that. 

Bonnie Bond: It’ll be interesting to see. 

Scotty Sykes: Yeah, so that’s another biggie. There’s also another update, Bonnie on 1099s.   

Bonnie Bond: Tell me. It’s my favorite too. That comes probably right behind ERTC.   

Scotty Sykes: The Department of Labor came out with updates or new rules or whatever for what classifies an employee versus an independent contractor. And so, this is a DOL issue, which requires an attorney to help you navigate this. But the way I’m reading it is if you got fill in pharmacists, and they’re coming and working and showing up on when you tell them. 

Bonnie Bond: Using your stuff, your equipment. 

Scotty Sykes: Using your equipment, using your break room. I mean, they’re, you’re telling them when to leave and all that. You might have an employee situation. 

Bonnie Bond: And we haven’t seen that as much in the past because we… 

Scotty Sykes: Nope, we haven’t. 

Bonnie Bond: But it’s out, again, a gray area, but we felt a little more comfortable about that specific example. 

Scotty Sykes: It’s out there. Yeah. 

Bonnie Bond: But yeah. 

Scotty Sykes: And that goes for techs too or whatever. 

Bonnie Bond: Yeah. Yeah.   

Scotty Sykes: And just, the big thing here is you don’t want to get caught with paying somebody as a 1099 when they’re really an employee because then you’re talking payroll taxes. You’re talking penalties and interest. 

Bonnie Bond: Penalties. 

Scotty Sykes: There’s usually no relief from that payroll taxes or payroll taxes. And potential overtime rules kick in and things like that. So, it could be a headache. So be careful. 

Bonnie Bond: And Scotty, there are forms for that. 

Scotty Sykes: Yeah. 

Bonnie Bond: I mean, for the employee or the potential employee or 1099 contractor, they can actually file for that relief when they do their personal return and report it. And that’s how it can also be brought to the IRS attention. I’ve seen people do that. I helped with 1 about 10 years ago and it was successful.   

Scotty Sykes: 10 years ago? 

Bonnie Bond: Yeah. 

Scotty Sykes: You’re old. 

Bonnie Bond: I know. The employee was like, I shouldn’t have been paid a 1099. Here’s the details behind what I was doing, where I was working, they filed it on their tax return. There’s a form for it. I couldn’t tell you what it is right off the top of my head, but you actually put the employer’s number, ID number, and everything on there.   

Scotty Sykes: Yeah.   

Bonnie Bond: And that employee, or 1099 contractor, has the desire to do that because when they do their tax return, they’re gonna owe a bunch of money in a lot of scenarios because they’ve got to pay Self Employment Tax on that. And so, they get this big tax bill, and they’re like, “this sucks. What can I do?”  So, then you’re like, you can file this form. And, you don’t have to pay the money. 

Scotty Sykes: Self-Employment Tax is, blah, it’s a killer. 

Bonnie Bond: It’s terrible. 

Scotty Sykes: Especially if you’re a partnership out there. 

Bonnie Bond: Yes. 

Scotty Sykes: Partnerships, pharmacies as partnerships might be some tax savings for you in that area. 

Bonnie Bond: Yeah, absolutely. So, yeah, just be real careful. There are instances where it makes sense to have 1099 contractors 100%. But be careful when you have these. I mean, but be careful when you have these employee type people coming in, using…yeah. 

Scotty Sykes: Yeah, I mean, you just got to be careful because we got new rules. You got a new Department of Labor rule out there on this. So, it’s always going to be on the radar during an audit. You’re going to get a question about 1099s if you get audited. You just want to have that on your radar. You just don’t want to ignore what’s out there in terms of classifying workers. 

Bonnie Bond: And if you guys are hearing this, obviously it’s time to get your tax returns done.   

Scotty Sykes: Yep. 

Bonnie Bond: Got a 3/15 deadline for most entities working towards that. 

Scotty Sykes: It’s coming. We’ve got a deadline approaching. So. 

Bonnie Bond: 4/15, obviously for your personal returns, it’s fun times around here.   

Scotty Sykes: And just a quick little tax plan tip. I’m loving the profit sharing’s this year. Most notably because of the DIR changes or the trimester that’s going to hit. 

Bonnie Bond: Yep. 

Scotty Sykes: Actually, we’ve heard CVS is pushing that back.   

Bonnie Bond: I heard that as well. 

Scotty Sykes: A handful of weeks or so. 

Bonnie Bond: A couple of weeks. Gives you a little more breathing room. 

Scotty Sykes: A little more breathing room. But with a profit sharing, you can accrue that deduction for the previous tax year, and if you go on an extension, you don’t have to pay it until September. 

Bonnie Bond: Yep. That’s huge. 

Scotty Sykes: You still have to pay any tax due by April 15th. But as far as paying the profit sharing you have until September. 

Bonnie Bond: Buys you some time for sure. 

Scotty Sykes: You’re getting that tax savings for the March or February 15th deadline. 

Bonnie Bond: A little extra cash flow. 

Scotty Sykes: So that’s an easy little last minute planning strategy for anybody out there. Ah, so just a few quick updates here. I guess once this bill passes, if it passes, we’ll have another one. On what exactly it means for pharmacy. But those were the two highlighted items. So, 174 and the bonus depreciation. You got the ERC warning signs. Be aware that the disclosure program, it goes until March 22nd. After that, you’re in man. Once you’re in, you’re in. You can’t get out. 

Bonnie Bond: You’re locked in.   

Scotty Sykes: Yeah. So, just keep that on your radar. And then of course you got to watch out for the 1099s. That’s always a hot topic, but the DOL Department of Labor Rule there has changed the game a little bit on that. So, speak with your advisors on that, because that is an attorney area, not a CPA area. I will point that out. 

Bonnie Bond: That’s correct. 

Scotty Sykes: And I am not an attorney. 

Bonnie Bond: We are not attorneys. 

Scotty Sykes: And I don’t want to be one. How was your Valentine’s, Bonnie?   

Bonnie Bond: It was good. 

Scotty Sykes: Clark get you some flowers?  

Bonnie Bond: Nope, he did not. I’m not a flower type. I’d rather have the cash.   

Scotty Sykes: Your money. Give me money. A card with some money.  

Bonnie Bond: Flowers are gonna die. How about yours?  Did you give Carol a present?   

Scotty Sykes: I gave her her present that she had already wrapped. I did.   

Bonnie Bond: Smart.   

Scotty Sykes: I did get her a card. I pick out cards. Nice cards.   

Bonnie Bond: That’s good. Clark, he has it rough. Because my birthday is right next to Valentine’s. So, he likes to wrap it all in one event.  

Scotty Sykes: Well, Carol’s birthday is right after yours.  

Bonnie Bond: That’s right. The 9th, right? Yeah, he tries to wrap it all in kind of one event, usually on the weekend.   

Scotty Sykes: That’s a good way of doing it. 

Bonnie Bond: It’s like people who have birthdays at Christmas. It’s not fair, but anyway. Alright, well we might have an update to this update.   

Scotty Sykes: There could be an update for that. 

Bonnie Bond: There’s always going to be an update to the update.   

Scotty Sykes: And we’ll have ERC, man. We’re going to be talking about this for years. So, the drama of ERC.  

Bonnie Bond: It’s going to be horror stories later. Just watch.  

Scotty Sykes: I might have to start calling this the ERC podcast.   

Bonnie Bond: You can have a whole other podcast. Hey, do you want to talk about the other podcast? Real quick? You want to plug the other podcast?  

Scotty Sykes: Oh, that’s a good idea. Yeah. We have The Entrepreneurial Pharmacy Podcast.  

Bonnie Bond: If you love this podcast, you will love… 

Scotty Sykes: That is, we’re going to do one episode a month at this point. And it’s going to be on buying and selling pharmacies and starting pharmacies and things like that.  

Bonnie Bond: With the master.   

Scotty Sykes: It’ll be good. It’s gonna be a good one.  

Bonnie Bond: Ollin Sykes. 

Scotty Sykes: There’ll be a lot of good information in there. Yep, OBS will be making a cameo and yeah, it’ll be good. It’s gonna be a good one.  

Bonnie Bond: Yeah. A lot of information with that. People are always looking to do that. Buy and sell. Alright.   

Scotty Sykes: So, check it out. Subscribe, like, share.  

Bonnie Bond: Yeah, I heard one of the episodes was good.   

Scotty Sykes: You did?  

Bonnie Bond: I mean, it’s not as good as this podcast.  

Scotty Sykes: Well it’s hard to bring out, It’s hard to get my dad to come out of the shell a little bit. 

Bonnie Bond: Really? 

Scotty Sykes: Yeah.   

Bonnie Bond: Hmm. Just got to get him rolling.   

Scotty Sykes: Yeah.  

Bonnie Bond: On a topic.   

Scotty Sykes: All right.  

Bonnie Bond: All right. See you next time.  

Scotty Sykes: Thanks everybody for listening in to another episode and we’ll have some more updates to come and appreciate everybody listening in. Have a great day.  

Bonnie Bond: Bye. 

Scotty Sykes: Bye bye.