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New IRS Tax Guidance for ERTC and its Impact on Automotive Dealerships

Important updates have recently released by the IRS regarding the Employee Retention Tax Credit (ERTC) that affect auto dealerships. The ERTC has become a crucial component of the government's COVID-19 relief efforts, offering financial support to businesses affected by the pandemic. With the release of new IRS guidelines, which impact auto dealerships, it is essential for you to stay informed about the eligibility criteria and potential tax benefits available to your dealership.

To claim the credit, a dealership must have experienced either:

  • A full or partial shutdown of the trade or business due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19. Under a prior notice issued by the IRS, if the facts and circumstances indicate that the business’s operations are fully or partially suspended as a result of the inability to obtain critical goods or materials from its suppliers because the suppliers were required to suspend operations, then the business would be considered an eligible employer; OR
  • A reduction in revenue. The gross receipts of the business must have declined of at least 50% for the same calendar quarter from 2019 to 2020, or at least 20% for the same calendar quarter from 2019 to 2021 (only the first three quarters of 2021 qualify).

The new IRS guidance addresses the first point above. The IRS specifies that to claim the ERTC based on a supplier’s inability to deliver critical goods and materials, an auto dealership must demonstrate that a governmental order existed that suspended the supplier’s activities and caused the taxpayer to suspend their operations. The new guidelines analyze and apply the rules to five examples.

As you prepare for year-end planning, please consider this new guidance, and reach out for assistance to optimize your tax strategy. Citrin Cooperman’s Automotive Dealerships Industry Practice closely follows these developments and analyzes the IRS guidance to ensure we provide you with accurate and timely information. Our team of experienced professionals have in-depth knowledge of the automotive industry and are well-equipped to guide you through the intricacies of the ERTC.

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