Article
Risks of claiming employee retention tax credit through promoters for dealerships
July 16, 2023 · Authored by Ryan Dover, Amy Stillwell
A version of this article was published in the Orange County Automobile Dealers Association's Q3 Dealer Magazine on Aug. 11, 2023.
The employee retention tax credit (ERTC) has proven to be a lucrative benefit for many qualified businesses. Dealerships may be able to claim the credit under one of two eligibility requirements:
- A significant decline in gross receipts
- A partial suspension of operations
This guidance comes well after the enactment of the ERTC and is based on a continuously evolving understanding of the credit, the nuances of the dealership industry, and an understanding of IRS ERTC claim substantiation and documentation requirements.
ERTC for dealerships
Many dealerships aren’t eligible to claim the credit under the reduction of revenue test, largely due to increased manufacturer incentives and credits during the ERTC testing period. As a result, many dealerships may only qualify under the partial suspension test.
Under the California public health order dated March 19, 2020, Orange County dealerships were required to close all but their service and parts departments, which were deemed essential.
Many dealerships continued to operate their businesses in a limited capacity, in defiance of the order, until the tiered reopening beginning May 7, 2020. Many dealerships could be eligible for the ERTC for this period under the partial suspension rules, however, the IRS has differing rules regarding qualification for these periods. The IRS issued Notice 2021-20 to provide guidance on the ERTC, including additional information on what constitutes a partial suspension. According to the notice, an employer had a partial suspension if either of the following two circumstances occurred:
- More than a nominal portion of business operations are suspended
- The government order had a more than nominal effect on operations
Related sections
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.