Tag Archives: small biz owner

Don’t Believe The Hype: IRS Provides Update on Employee Retention Credit (ERC) Processing

Thanks yet again, and as always, to Lisa Simpson from the AICPA Town Hall for her regular updates on what’s going on with Employee Retention Credit processing at the IRS. I can trust this team to make sure I’m getting the latest information, free from rumors and gossip, and that I’m able to both quell my clients’ concerns and also manage their expectations.

I had just been hearing some rumblings in one of my professional associations — someone had said, “seems inevitable that anyone who filed an ERC claim after September 2023 will need to file a lawsuit to get the claim paid,” and went on to suggest that it would be a great opportunity for a law firm, and wanted to know if we had referrals in this space.

First off, it made me nervous — our remaining ERC claims, all for deserving small business and non-profit clients of a colleague, worked really hard to make sure we had what we needed to submit their claims by January 31st, 2024, since there was pending legislation that might retroactively end the program after that date. They all were informed that it might be a year or more before they received the money, given the IRS moratorium — but certainly none of us expected to line the pockets of an attorney in order to get the claims paid out. And in fact, the claims were mostly small enough that my guess is most lawyers wouldn’t bother with them.

Secondly… it made me suspicious. On what basis was this guy saying a lawsuit would be “inevitable”? I attend every single AICPA Town Hall and hadn’t heard anyone suggest this. And what a sad thing to suggest it would be a “great opportunity” for a law firm — to specialize in making money off those desperate to finally receive what they and their accountants had already worked so hard to obtain.

As usual, I decided to quell those fears until the next AICPA Town Hall, and I’m so glad I did, as Lisa Simpson made ERC the first topic in her Technical Update. She explained the recent IRS news release that likely triggered the unfounded rumblings I was hearing, as well as referenced a new Journal of Accountancy article that delved deeper.

My takeaway was that: while 10-20% of claims are clearly fraudulent, and the IRS is in the process of denying them; and another 60-70% show an unacceptable level of risk and will be examined carefully — there are also between 10% and 20% of the claims show a low risk. The IRS “will begin judiciously processing” more of these claims, and, according to the release, expects some of these payments to be made later this summer.

To me, that’s all good news. It means they’re working through the piles and expediting the ones that have straightforward claims where the businesses played by the rules, processing the oldest ones first. The rest will be examined more critically, or in the case of blatant fraud, flat-out denied.

The one disappointing piece of information is that no claims submitted during the moratorium will be processed at this time. But at least we know the backlog is being cleared to make way for them. Since the moratorium was put in place, the IRS has received over 17,000 claims per week.

I’ve let my clients know that they shouldn’t budget for these dollars for at least another year, but that there’s no reason to presume they won’t eventually receive the claims that are due to them.

And yet again I learned that if something sounds sensational and suspicious… it might not be grounded in evidence and analysis. Rely only on your trusted advisors for the education and resources that will help you guide your small business clients. (And then provide links to those resources to the sensationalists who spread misinformation.)


If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Transitioning To Employee Ownership: FREE On-Demand Webinar

Yesterday I attended an excellent webinar on how two different small business owners transitioned ownership to their employees — one using an ESOP and one using a Worker Co-op structure.

As a CPA and consultant to many small business owners, I often am asked about succession planning and exit strategies, and my experience in cooperative taxation often leads me to recommend a transition to employee ownership. So I was glad for the opportunity to learn from the experiences of these folks who are in the thick of it.

My colleague Courtney Berner of the University of Wisconsin Center for Cooperatives led the webinar and Q&A, and Steve Storkan of the Employee Ownership Expansion Network interviewed business owners Gina Schaefer and Marty Ruddy.
– Courtney – https://uwcc.wisc.edu/staff/berner-courtney/
– Steve – https://eoxnetwork.org/
– Gina – https://acehardwaredc.com/pages/employee-ownedgina@acehardwaredc.com
– Marty – https://www.terrafirmamn.com/

I strongly recommend the informative and helpful free recording!

And just in case they might be helpful as an outline or while following along with the recording, the notes I took during the session are below.

Thanks again to Courtney, Steve, the panelists, and UWCC for this excellent resource!


Three main EE ownership structures —

  • ESOPs, most common, about 70% – better for larger busineses
  • Worker co-ops, less common but fast-growing
  • EE Ownership Trust, more common in Britain

Half of privately-held businesses are owned by boomers — who will be retiring soon (the “silver tsunami”).

ESOP – Employee Stock Ownership Plan
Employee financial control, not management control.
How does it work? the company gets a loan (from bank or owners) to pay the owners (whatever percentage ownership is agreed upon; can happen in tranches)
The owners get paid, and the company pays the loan off over time on behalf of the staff, and releases the stock to the employees
Employees just “get” their shares as opposed to worker co-ops where each member has to buy in.
Owner can remain CEO as long as necessary.
The tax benefits of an ESOP can save about 20% of value in terms of the company price compared to selling to private equity.
Vests in 20% increments annually until the employee is fully-vested.
If someone departs, the company has five years to pay them off.

Worker Cooperative
Employee-Owners have both financial and managerial control. One member, one vote.
Must sell 100% ownership to the workers; no partial purchases like with an ESOP.
Owner may become one of the many worker-owners in the new structure.
Owner or bank can finance a loan to pay the owners off over 15 years or however long.
John Abrams model – buy-in for each new owner is the price of a decent used car. :)
So they are two different things: buy-in by each worker-owner, vs company-held loan to pay off the owner.
Company can lend each owner some of the money to buy their share if that helps.
What happens if someone leaves from Marty’s worker co-op: the company has five years to pay back $9k initial investment if necessary,
but usually pay it off very quickly just to get it off the Balance Sheet if they have the cash to do it.
Then the internal capital account gets paid out in a different way, on a schedule with other owners.

Inviting staff to have an ownership mentality and be a democratically-run organization is very valuable, especially in anticipation of transitioning to ownership — but different from actual EE ownership.

Recommended book: John Abrams, “The Company We Keep”.

Neat idea – buying a pie for new owners as a way to say “here’s your piece of the pie”.

National Cooperative Resource Map – links to co-op development centers, associations, cooperative-friendly capital, co-op statutes by state:
https://uw-mad.maps.arcgis.com/apps/MapSeries/index.html?appid=a5eda85604f84f02a4f24b3b4483fb69

Questions from Q&A:
Are you using the terms “Exit Planning” and “Succession Planning” interchangeably, or do they have different meanings for you?
How did you educate your employees on employee ownership?
I am working with two businesses doing projects with students in my co-op business management course. An existing worker co-op has lots of legal questions how they can and/or must differentially treat workers as employees and workers as owners. Can you advise a good first landing on legal assistance to help get their questions answered or directed to those who should. I’m no lawyer and most that I work with are in the farmer co-op world. Thanks.
What is your advice for business-owners where the owner is the key employee with specialized knowledge and credentials that is not easily replaced by other existing staff?
In Marty’s buy in model, can that buy in level be paid to the co-op over time (installments) or is it all upfront (day 1).
What happens to the equity in the business as an employee leaves, and how is that different between the 2 structures
Could a consumer cooperative spin off, say, 30% for employees to become owners under either of these structures?
What is the difference in governance control of workers as an ESOP vs a Worker Co-op? I expect there is a range of options.
A follow up to the question about spinning off 30% of a consumer co-op, could the creation of the ESOP or worker co-op component be a vehicle for capitalizing the co-op for expansion or other purposes?
Are worker equity shares in a worker co-op appreciable over time?
Steve, you mentioned existing ESOPs or Coops bringing in another small biz as a merger/acquisition, perhaps sold by a founder with no buyer prospects. Can you talk more about this as another pathway for transitioning an existing biz to an employee-owned company?
I appreciate the conversation about sharing the wealth, but one challenge I see as a CPA is that workers are always convinced that owners are “hoarding” the profits and that’s one of the motivations for becoming worker-owned. However, the company has to be healthy and profitable for this to happen! It’s not magic. If the company is struggling, the worker-owned version of the company will struggle, too. It’s not a magic bullet.
I know there are food co-ops that are also worker co-ops. How could a consumer co-op facilitate their workers starting their own worker co-op inside the food co-op?
Are there incentives, support, programs, etc. for someone looking to start a private business with a roadmap from the beginning to convert to an employee ownership model?
If a small worker owned cooperative or ESOP is often structured as a partnership for tax purposes, does the cooperative structure only impact management?
For Marty, how do the workers owner manage or address the tension between investment in the equipment needed for the business versus profits place into the internal capital account and subsequently distributed?
Interested in any ideas or models for how workers in a consumer co-op might gain “more stake in the game,” feel a real sense of ownership and directly benefit from the growth and success of the business.
What are unique challenges associated with performance management (horizon problem, shirking, freeriding, etc) at employee owned businesses? Do you use any tools/tech for reviews, ratings, etc?
Can you highlight top 3 challenges of running an employee owned business that technology or tools can help solve?
Is there any way to plan succession or manifest employee ownership when the company is merely a one or two person shop without younger family?


If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. Ths allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.