Employee Retention Credit (ERC) Audits

Are you getting the right advice?

Congress created the Employee Retention Credit, a refundable tax credit, to encourage businesses to keep employees on the payroll while the business was shutdown due to the Covid-19 pandemic or experienced significant declines in gross receipts between March 13, 2020 and December 31, 2021.

In general, to be eligible for the ERC an employer had to meet one of the following criteria:

  • An employer experienced a full or partial cessation of business operations due to orders from the government that limited travel, commerce, etc. due to the Covid-19 Pandemic;
  • Experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021;
  • Qualified as a recovery startup business for the third and fourth quarters of 2021

In addition to the general criteria, there are also a number of different monetary limits based on the specific time period that wages were paid.  Qualifying businesses can claim up to a total of $26,000 per employee in refundable credits.  Tax refunds can be quite large for employers with a large number of employees.

Unfortunately, the implementation of the ERC has given rise to a number of third parties that are advising employers to claim the ERC when they may not actually qualify.  Many of these third party companies will use attractive mass advertising and direct solicitations that promise large tax savings for a business, unfortunately many of these are literally too good to be true!

These entities will often take incorrect positions regarding an employers eligibility for the ERC and the calculation of the credit.  These third party companies are known to charge significant upfront fees or to structure contingent fees based on the eventual amount of the refund and will often neglect to tell employers that wage deductions must be reduced by the amount of any credit.

The IRS has begun actively auditing ERC refund claims.  The IRS is training 100s of Revenue Agents to examine amended employment tax returns claiming the credit.  Business taxpayers must realize that in the end, they are responsible for the information on the tax returns and that improperly claiming the ERC can result in having to repay the credit, plus interest and penalties.   Even if you have mistakenly claimed the credit, you can often mitigate the impact by having correct amended tax returns filed prior to being contacted by IRS and potentially avoid certain penalties.

Determining eligibility for the ERC can be complicated and confusing.  Your business needs an experienced reputable firm to help you navigate the labyrinth of ERC regulations.  Our experienced tax resolution team stands ready to review your situation, provide you with a detailed analysis and help you secure any refunds that might be appropriate.  Contact us today for more information!