The Employee Retention Tax Credit (ERTC), also known as the Employee Retention Credit (ERC), is a valuable tax credit that was enacted by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).  Unfortunately, many organizations have received bad advice on whether they qualify for the ERC, and as with many other tax credits, the Internal Revenue Service (IRS) has started to examine ERC claims.  They have also begun to prosecute those that have taken fraudulent, or simply unsupported, positions when applying one of the most valuable tax credits ever available to a business.  Additionally, it has been reported that the IRS is considering a soft letter campaign to flush out those who claimed ERC along with a voluntary disclosure practice for those who pushed the margins in claiming the credit.  Without proper representation and support, organizations have the possibility of getting the credit tossed out or worse.

What should you do if you receive a notice of audit?  Here is some information for what to do in three different scenarios.

Thompson Greenspon Prepared My Claim

If a Thompson Greenspon ERC client receives a notice, they should reach out to the principal on their account and share the notice via a secure link from us.  As a part of our standards for the ERC application process, we have prepared what we consider an “audit ready” documentation package.  This package includes documentation of supporting positions for qualifications tests, computations, proof of allocations, and other requirements.  We can provide appropriate representation and support to our clients who may be selected for audit.

Another Firm or Organization Prepared My Claim

Typically, we recommend that employers reach out to the organization that prepared the original claim for assistance with IRS audit support.  Additionally, to anticipate the possibility of audit or review of your claim, it would be best to confirm that you have been provided with documentation and support for the credits that were claimed.  If the firm or organization is unwilling or unable to assist with an ERC audit, Thompson Greenspon does provide services to assist with preparing to become “audit ready” in event of an inquiry.  We may also be able to assist with an amended claim, should that be warranted.

I Prepared My Own Claim

If your ERC claim was self-prepared, it is possible that some required documentation may be missing.  It is also possible that you could have been entitled to a larger (or smaller) credit than initially requested.   If you have concerns that your claim may not have been completed as thoroughly as you had hoped, Thompson Greenspon has services available to assist taxpayers to properly claim their appropriate credits and ensure that documentation is in order.

What Questions Will the IRS Ask in an ERC Audit?

Taxpayers and their advisors should expect questions around eligibility qualifications, gross receipts computations, ERC calculations, list of owners, Paycheck Protection Program loan information, and more.  The IRS examiners will expect to see supporting documentation, calculations, spreadsheets, and cited government orders that support all information that was reported or used to justify an ERC claim.

Getting a notice from the IRS can be a scary situation.  With thousands to millions of dollars at stake for each organization, it is important to ensure that your organization is ready in the event of an IRS audit of your ERC claim.  And if you haven’t claimed the ERC credit and think you may be eligible, it is not too late.  Contact us to see if we can help you in either situation.

This article is the first of a three part series. For the other articles within this series, visit:

• ERC Series, Part 2: Received An Employee Retention Credit? The IRS May Have Tough Questions For You
• ERC Series, Part 3: Eligible Employers Still Have Time To Claim Employee Retention Credits