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Tax News

GA Dept of Labor Audits happening NOW!!!

The question of Independent Contractor versus Employee is coming up again.  We’ve brought this up with several clients in the past, but we feel it is imperative that we bring it up again.  While this email may seem to be overkill, we want to alert you that the GA Department of Labor is currently performing ‘random’ audits to identify possible employees lurking in your sub-contractor pool.  Below, you will find the criteria from the IRS and the State of GA regarding the classification of an Independent Contractor.  As you can see, it is difficult to meet all the factors.

Why is GA auditing?  Because, over the years, a lot of contractors have applied for unemployment benefits and GA wants YOU to pay for those benefits.  How?  By listing them all on your quarterly DOL report, thus paying into the fund for each contractor. 

What is the cost of listing your contractors?  It is based on earnings up to a maximum of $9500 per year per person and payable at your current SUTA rate.  So, if your rate is 2.70% (standard for new businesses), it would be a cost of $256.50 per contractor each year.  If your rate is the lowest possible, or 0.04%, the cost would be $3.80 per contractor per year.

If you are audited and GA determines that your contractors are indeed employees, you will pay penalty and interest in addition to the SUTA charges on each person PLUS any additional fines as noted in the GA section of this email; the DOL may also open the audit to other years and increase your costs.  We don’t want to see that happen. 

Also, just because your contractor states they are an LLC, does NOT automatically exempt you from DOL tax; only S and C Corporations are exempt.  Georgia DOL can classify these people/companies (LLCs) as taxable.  You must have a W9 on file.  We have been working hard through the years to make sure we have a copy of those in our files, but again, that will not automatically get you out of the DOL requirement.

Please read the information below.  We can’t force you to include your contractors on the quarterly DOL reports, but we certainly recommend it, especially in light of the new specifications they are using to try to bring more people in to be taxable. 

If you have questions, please give me a call to discuss. 

From the IRS

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid**, whether expenses are reimbursed, who provides tools/supplies, etc.) **how the worker is paid – by the hour or by the job (emphasis from GAD)
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship and consider the extent of the right to direct and control the worker. Finally, document each of the factors used in coming up with the determination.

From Georgia

Effective July 1, 2022, Georgia House Bill 389 amended its Code Section 34-8-35 for determining whether a worker is an Independent Contractor or an employee under its Employment Security Law; it now examines the nature and scope of the individual’s work, rather than purely relying on the control exercised to determine the existence of an employer-employee relationship. Under the new law, seven factors are considered in making this determination:

  1. Ability to work for other companies or hold other employment at the same time;
  2. Freedom to accept or reject work assignments without consequence;
  3. No minimum hours to work, or in the case of sales, no minimum number of orders to be obtained;
  4. Discretion to set his or her own work schedule;
  5. Receipt of only minimal instructions and no direct oversight or supervision regarding services to be performed, such as the location where the services are to be performed and any requested deadlines;
  6. No territorial or geographic restrictions; and
  7. No requirement to perform, behave or act or, alternatively, being compelled to perform, behave or act in a manner related to the performance of services for wages.

This means a worker is presumed to be an employee unless the worker is:

  • Customarily engaged in an independently established trade, occupation, profession or business; and
  • Has been and will continue to be free from control or direction over the performance of services for wages, both under the worker’s contract of service and in fact, as demonstrated by certain factors.

Said chapter is further amended by adding a new Code Section 34-8-257 to read as follows:

  • (a) Notwithstanding any other provision of law and in addition to any other penalties, fines, or offenses prescribed under this chapter, an employing unit that violates this chapter by failing to provide any contributions or administrative assessment owed for individuals whose service is described in subsection (f) of Code Section 34-8-35 shall pay to the Commissioner a civil penalty.
  • For employing units with less than 100 employees, as determined by the Commissioner, the civil penalty shall be in an amount not to exceed $2,500.00 for each such individual.
  • For employing units with 100 or more employees, as determined by the Commissioner, the civil penalty shall be in an amount not to exceed $7,500.00 for each such individual.
  • In determining the amount of the civil penalty to be imposed, the Commissioner shall consider such factors as the number of individuals not properly classified such that the contributions and administrative assessments were not paid and the frequency of improper classifications by such employing unit.

Employee Retention Credit - Did you truly qualify?

Did you really qualify for the credit or were you convinced you qualified from a 3rd party company?


The Employee Retention Credit (ERC) is a hot topic.  Even though it only existed for parts of 2020 and 2021, the opportunity to amend the Forms 941 to claim this credit is still here.


There are specific rules that have to be met in order to qualify for this credit.  The basic rules for ERC can be found in IRS Notices 2021-20, 2021-23, 2021-49, and 2021-63.  IRS did a pretty good job of explaining the rules in a Question-and-Answer format when it wrote these Notices.


There are many companies promoting the ERC and sending out telephone calls, emails, text messages, etc.  Some of these companies are basically stating that EVERY BUSINESS is entitled to this credit.  These companies often focus on a “shutdown” provision that, basically, stating “the inability to get one or more supply is sufficient to qualifying a business for the ERC.”  This interpretation is NOT the way the law is written.


On July 21, 2023, IRS released a Chief Counsel Memorandum which discusses the inability to get supplies and whether this qualifies the business for the ERC.  Below are the scenarios (as written by IRS) mentioned in the CCM.  


SCENARIO 1:  Employer A was not subject to any governmental orders limiting commerce, travel, or group meetings due to COVID-19 at any time.  However, during 2020 and 2021, Employer A experienced several delays in receiving critical goods from Supplier 1.  At all times during 2020 and 2021, Employer A continued to operate because Employer A had a surplus of the critical goods normally provided by Supplier 1.  Employer A assumed that Supplier 1’s delay in delivering critical goods was caused by COVID-19.  Employer A inquired and Supplier 1 vaguely confirmed that the delay was due to COVID-19.  Supplier 1 did not provide a governmental order from an appropriate governmental authority and Employer A was unable to locate one.


CONCLUSION SCENARIO 1 – Employer A does not meet the definition of eligible employer provided under section III.D., Q/A-12 of Notice 2021-20 because Employer A cannot demonstrate that a governmental order applicable to Supplier 1 fully or partially suspended Supplier 1’s trade or business operations.  Even if Employer A received or could locate the governmental orders applicable to Supplier 1, Employer A did not have to cease operations because Employer A had a reserve of critical goods allowing Employer A to continue operations; thus, Employer A did not experience a full or partial suspension of operations due to an inability to obtain Supplier 1’s critical goods.  The relevant inquiry is whether Employer A’s trade or business operations could continue; since Employer A was able to continue its own business operations despite the supply chain disruption, it was not subject to a full or partial suspension of operations.


SCENARIO 2:  Employer B was not subject to any governmental orders limiting commerce, travel, or group meetings due to COVID-19 at any time.  However, certain critical goods from Supplier 2 were stuck at port in State X.  Employer B assumed the bottleneck at the port was a result of COVID-19.  Employer B could not identify any specific governmental order applicable to Supplier 2 or any specific governmental order that caused the bottleneck at the port.  Some news sources stated that COVID-19 was the reason for the bottleneck, while others cited reasons such as increases in consumer spending and aging infrastructure.  In addition, Supplier 2 mentioned to Employer B that other critical goods that were not stuck at port would be delayed due to a truck driver shortage.  Employer B saw some discussion on social media that the truck driver shortage was because drivers were out sick due to COVID-19.


CONCLUSION SCENARIO 2:  Employer B does not meet the definition of an eligible employer under section III.D., Q/A-12 of Notice 2021-20 because Employer B cannot demonstrate that a governmental order applicable to Supplier 2 fully or partially suspended Supplier 2’s trade or business operations.  In addition, while COVID-19 may have been a contributing factor to the bottleneck at the port or the truck driver shortage, Employer B could not substantiate that any specific governmental order caused a bottleneck at the port.  Even if Employer B could identify governmental orders applicable to the bottleneck, Employer B must substantiate that the bottleneck and thus the suspension of Supplier 2 was due to the orders.


SCENARIO 3:  Employer C and Supplier 3 are located in a jurisdiction that issued governmental orders suspending both of their business operations for the duration of April 2020.  Employer C and Supplier 3’s jurisdiction lifted all orders related to COVID in May 2020.  For the remainder of 2020 and 2021, Employer C experienced a delay in receiving critical goods from Supplier 3.  Supplier 3 does not provide a reason for the delay, but Employer C assumes the delay is due to the governmental order in place in April 2020.


CONCLUSION SCENARIO 3:  Employer C is an eligible employer in the second calendar quarter of 2020 because its business operations were fully or partially suspended due to a governmental order.  However, only wages paid with respect to the period during which Employer C is fully or partially suspended due to a governmental order may be considered qualified wages.  See section III.D., Q/A-22 of Notice 2021-20.  Employer C does not meet the definition of an eligible employer under section III.D., Q/A-12 of Notice 2021-20 for any subsequent calendar quarter in 2020 or 2021 because Employer C cannot demonstrate that a governmental order applicable to Supplier 3 fully or partially suspended Supplier 3’s trade or business operations.  The residual delays caused by a governmental order in place during a prior calendar quarter will not constitute a governmental order in subsequent calendar quarters once the order has been lifted.


SCENARIO 4:  Employer D was not subject to any governmental orders limiting commerce, travel, or group meetings due to COVID-19 at any time.  During 2020 and 2021, Employer D could not obtain critical goods from Supplier 4.  However, Employer D was able to obtain the goods from an alternate supplier.  The critical goods from the alternate supplier cost 35% more than those from Supplier 4.  Employer D could continue to operate its trade or business even though it was not as profitable as in 2019.


CONCLUSION SCENARIO 4:  Employer D does not meet the definition of an eligible employer under section III.D., Q/A-12 of Notice 2021-20 because Employer D could continue to operate its trade or business.  Employer D was not prevented from operating its trade or business at any point during 2020 or 2021.  Incurring a higher cost for critical goods does not result in a full or partial suspension of operations.


SCENARIO 5:  Employer E operates a large retail business selling a wide variety of products.  Employer E was not subject to any governmental orders limiting commerce, travel, or group meetings due to COVID-19 in 2021.  Due to various supply chain disruptions, Employer E was not able to stock a limited number of products and was forced to raise prices on other products that were in limited supply.  However, at no time did the product shortage prevent Employer E from continuing to fully operate as a retail business during 2021.


CONCLUSION SCENARIO 5:  Employer E does not meet the definition of an eligible employer under section III.D., Q/A-12 of Notice 2021-20 during calendar year 2021 because Employer E cannot demonstrate that a governmental order applicable to a supplier of critical goods or materials caused the supplier to suspend operations and that Employer E was unable to obtain critical goods and materials causing a full or partial suspension of Employer E’s business operations.  At all points during 2021, Employer E was able to operate its retail business.  While a limited number of products were not available, Employer E was still able to offer a wide variety of products to its customers and Employer E was not forced to partially suspend operations.


Comments – Don’t forget that the wages/health insurance expenses must be reduced on the income tax return by the credit amount FOR THE YEAR these expenses were incurred.  AND don’t forget IRS has previously stated a tax professional can rely on another preparer’s work, but not blindly.  In other words, the tax professional must reasonably know the tax rules and feel comfortable that the other preparer properly followed them.  Therefore, it is not acceptable to amend the income tax return unless the tax profession feels comfortable that the business was properly eligible for the ERC and that the ERC was properly calculated.


Chief Counsel Memorandum AM-2023-005.


ERC tops dirty dozen scams

For the start of the annual Dirty Dozen list of tax scams, the IRS spotlighted Employee Retention Credits following blatant attempts by promoters to con ineligible people to claim the credit. Renewing several earlier alerts, the IRS highlighted schemes from promoters who have been blasting ads on radio and the internet touting refunds involving Employee Retention Credits, also known as ERCs. These promotions can be based on inaccurate information related to eligibility for and computation of the credit.

"The aggressive marketing of these credits is deeply troubling and a major concern for the IRS," said IRS Commissioner Danny Werfel. "Businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits. There are very specific guidelines around these pandemic-era credits; they are not available to just anyone. People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims. We urge honest taxpayers not to be caught up in these schemes."

The IRS is stepping up enforcement action involving these ERC claims, and people considering filing for these claims – only valid during the pandemic for a limited group of businesses – should be aware they are ultimately responsible for the accuracy of the information on their tax return. The IRS Small Business/Self-Employed division has trained auditors examining these types of claims, and the IRS Criminal Investigation Division is on the lookout for promoters of fraudulent claims for credits.

Abusive ERC promotions highlight day one of the IRS annual Dirty Dozen campaign – a list of 12 scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more.

This annual list of schemes and scams is aimed at helping raise awareness to protect honest taxpayers from aggressive promoters and con artists. These schemes put people at financial risk and increase the chances people could become victims of identity theft.

"Businesses should be wary of advertised schemes and direct solicitations promising tax savings that are too good to be true," Werfel said. "They should listen to the advice of their trusted tax professional. Taxpayers should remember that they are always responsible for the information reported on their tax returns. Improperly claiming this credit could result in taxpayers having to repay the credit along with potential penalties and interest."

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or that had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

Properly claiming the ERC

Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

Source - Notice 2023-49

Upcoming ERC Audits - IRS Compliance

IRS Compliance – Upcoming ERC Audits

In connection with its recent warning, the IRS is preparing for a major compliance enforcement effort of ERC refund claims. Recently, the IRS Small Business/Self-Employed Division has begun training 300 examiners to examine ERC refund claims.

Last month, the Commissioner of this IRS Division, told tax practitioners that the IRS is encouraging taxpayers to take advantage of the credit, but that the IRS is “monitoring the situation very closely.” She said the warning signs of these schemes include large upfront fees, advertised solicitations and suggestions that businesses have nothing to lose by submitting these claims. As of February 14, 2023, the IRS Criminal Investigation division has initiated 44 investigations into ERC fraud that include aggressive ERC promoters and enablers. Eleven individuals have been charged to date.

In its examination of questionable ERC claims, the IRS likely will focus on three areas; eligibility, substantiation of the amount claimed and whether an amended income tax return was filed to correct any overstated wage deduction.

A particular focus of the IRS will be on substantiating qualifications based on a partial suspension of business operations, which requires a taxpayer to demonstrate that a government order interrupted at least a portion of its business operations. Additionally, the order must be more than a recommendation and the shutdown order must have impacted business operations by a more than nominal amount.

2023 Meals are back to 50% deduction

If you’ve splurged on expensive meals for business associates or sprung for high-priced tickets to sporting events or concerts for clients in the past, take heed: the tax deductions aren’t what they used to be.

Prior to the Tax Cuts and Jobs Act (TCJA) of 2018, businesses could deduct up to 50% of entertainment and meal expenses, provided they were associated with conducting or discussing business. The TCJA eliminated the deduction for most forms of entertainment but allowed taxpayers to continue deducting 50% of the cost of business meals.

In 2021, the Consolidated Appropriations Act (CAA) allowed businesses to deduct 100% of certain business meal expenses in 2021 and 2022. But the deduction was temporary, designed to boost the restaurant industry during COVID.

As of 2023, deductions are now back where they were prior to 2021. The majority of business meals are now 50% deductible, and most entertainment expenses are not deductible at all.

What’s Deductible in 2023

Exactly what is deductible, and to what extent, depends on the circumstances. Following are some general guidelines:

100% Deductible

  • Food for recreational employee events, such as holiday parties, summer picnics, or team-building events
  • Food provided to the public to promote goodwill (e.g., snacks or coffee for customers)
  • Food for events in support of a charitable cause
  • Meals that are an essential part of your business function (for example, if you’re a food critic or food blogger)
  • Meals provided to the employees for the convenience of the employer (e.g., dinner for employees who work late at the office)
  • Meals included as taxable compensation to employees or independent contractors
  • Meals sold to a client or customer

50% Deductible

  • Business meals
  • Meals provided in-office for meetings of employees, stockholders, agents, or directors
  • Employee meals at a company cafeteria if the annual revenue of the facility is equal to or greater than the costs
  • Food items, such as soda, coffee, or snacks, for employees
  • Meals while traveling for work
  • Meals at a conferences

Not Deductible

  • Entertainment

The Internal Revenue Code defines entertainment as “any activity which is of a type generally considered to constitute entertainment, amusement, or recreation, such as entertaining at night clubs, cocktail lounges, theaters, country clubs, golf, and athletic clubs, sporting events, and on hunting, fishing, vacation, and similar trips….”

Note that you also cannot deduct the costs of renting out an entertainment facility or the cost of membership dues.


Entertainment and meals that are part of your actual business may be deductible. For example, if you own a piano bar, the cost of the piano player would probably be deductible. Similarly, if you are a food blogger or a theater critic, you should be able to deduct the cost of meals or plays that you are actively reviewing.

You may be able to deduct meals at entertainment events if the costs can be separated. For example, while the cost of renting a room at a country club for a business function most likely isn’t deductible, the cost of catering for that function might be.

Criteria for Deductions

To deduct business meals, you must be self-employed or operating a business. As of 2018, employees with W2 jobs do not qualify for business meal deductions.

Business meals can be deducted only when the taxpayer or an employee is present at the meal along with a current or potential client, business contact, or consultant. Meals for guests, such as spouses, are not deductible. 

In most cases, meals must be provided by a restaurant or, in the case of larger events, a caterer, to be eligible. Food purchased at a grocery or convenience store is not deductible.

In all cases, the meal must not be “lavish or extravagant” relative to the business context.

Documenting Deductions

You should keep receipts for any business meal over $75, and you should keep a record of all business meals, regardless of cost. Records should include:

  • The date of the meal
  • Purpose of the meal as it relates to business
  • Names, titles, and affiliations of people who attended
  • Name of the venue
  • Total amount of the bill, including tax and tip.