Your Guide to Surviving an Employee Retention Credit IRS Audit

by | Oct 5, 2022 | Blog | 0 comments

Audit

Since the start of the Employee Retention Credit program, the IRS has processed claims totaling $18.4 billion. And now they’re starting to check on their money by auditing claims. So, if your business applied for and received ERC money, you may be selected for an audit. But don’t panic! A notice to audit does not mean the IRS thinks you did something wrong. It just means they’ve selected your claim for review.

The IRS will be conducting ERC-related audits for the next five years. Here are some of the things they will likely focus on during an ERC audit:

  1. Large vs. small employer qualification. The amount of the credit is based on eligible wages paid to employees. Therefore, the IRS will likely focus on whether your business correctly identified its employee count and correctly classified employees as full-time or part-time.
  2. Gross receipts. The IRS will want to know whether you calculated gross receipts correctly. To be eligible, you should have seen a decline in gross receipts of more than 50% in any quarter in 2020 or more than 20% in any of the first three quarters in 2021.
  3. Suspension of operation. The IRS will want to see documentation to support your claim that government orders to limit commerce, travel, and large gatherings had more than a nominal effect on your business, as well as evidence that your employees could not work comparably online.
  4. Aggregation. The aggregation rules are complex. The IRS will want to know that you applied the rules correctly. Better yet, they will want to know you worked with an experienced advisor.
  5. ERC Calculation. The IRS will want to see documentation to support your calculation. They’ll also want to ensure you maintained adequate records to substantiate your eligibility.

The rules for the ERC are detailed and complex. It’s important to work with an experienced advisor and keep your documentation in order. If you’re concerned about your claim, now’s the time to do something about it. Don’t wait for the IRS to come calling. Let Miami CFO analyze your claim and documentation. Use this link to schedule a meeting: https://calendly.com/miami-cfo.