The IRS has begun auditing Employee Retention Credit (ERC) claims
We all knew that this day might come, and now it has. Multiple businesses recently notified us that the IRS is auditing their employee retention credit (ERC) claims. This does not mean these businesses did anything wrong or will end up owing money to the IRS; it simply means that the IRS selected their file for review. It is unknown whether they were randomly selected for audit or were targeted for some reason.
What information is the IRS looking for?
There are certain things that the IRS is likely to look at when conducting an audit. These include whether or not you were eligible for the ERC, how it was calculated, and if you amended your tax return to reflect the ERC correctly. However, there are many other areas where businesses can make mistakes.
For example:
Remember that the FTE concept for the ERC is different from the FTE concept for the PPP ( See Notice 2021-20, Q&A #31).
What are my next steps?
You should double-check your analysis if you claimed an ERC, regardless of whether you determined eligibility by gross receipts or partial suspension – especially if you think you may have taken aggressive positions. Claiming the ERC is similar to claiming a deduction on your corporate tax return – both are held under penalties of perjury.
Don’t wait until the IRS contacts you about your claim for the ERC. Start gathering information and documenting your gross receipts or governmental orders before filing. Remember that one of the ERC program’s requirements is to maintain all documentation pertaining to your claim for four years ( See Notice 2021-20, Q&As 70 &71).
What will the IRS notifications look like?
The IRS has started to send out Information Document Requests (IDRs). In the first IDR we obtained, the IRS asked questions about eligibility and various aspects of the calculation.
They also asked for documents like tax forms, payroll journals, health plan expenses, lists of employees and owners, information supporting either the partial suspension or gross receipts test, information relating to PPP loan forgiveness, and proof that you allocated wages between the PPP and ERC correctly.
The gross receipts test also requires spreadsheets showing how much your business made each quarter. This is used to check if your yearly gross receipts matched what you reported on your taxes.
How can G Financial help me with my IRS ERC audit?
G Financial has assisted many businesses with the ERC. We have helped our clients work through the problematic issues surrounding aggregation rules and the partial suspension test, and we have developed algorithms to allocate wages between the ERC and PPP to ensure the maximum amount of ERC is obtained without violating the rule against double dipping.
In short, we have spent significant time parsing through the CARES Act (which created the ERC), the ERC statute (§3134), and the various notices published by the IRS regarding the ERC. We hold significant institutional knowledge of the program and have advised over 300 clients with the ERC.
We are available to assist any business chosen for an ERC audit by the IRS.
Even if another firm filed your ERC, we have the experience and experts to help you navigate your ERC audit.
