Can ERTC Specialists Help Mitigate Risks During Tax Audits?
The Employee Retention Tax Credit can be a lifesaver for business owners who struggled financially during the COVID-19 pandemic. When the program first launched, hundreds of businesses took advantage of the credit, whether they qualified or not. As a result, IRS scrutiny for the ERTC has increased, meaning there’s an audit risk if you don’t claim the credit correctly.
Here’s what to know about ERTC tax audits and how to avoid them.
Determining Eligibility for the ERTC
To avoid a compliance audit for ERTC claims, you must only claim the credit if your business is eligible. By ignoring the eligibility criteria, you risk finding an audit notice from the IRS in the mail.
You must meet at least one of these requirements:
- Your business fully or partially shut down because of a government order limiting group meetings, travel, or commerce.
- You had a big drop in gross receipts (at least 50% compared to the same calendar quarter of the prior year for 2020 and a drop of at least 20% for 2021).
Avoiding Risk Factors for ERTC Audits
If you wish to avoid an Employee Retention Tax Credit examination, it helps to understand a few risk factors for ERTC tax audits. These include:
- Claiming the credit for quarters for which you are not eligible
- Claiming wages paid to independent contractors (you may only claim wages for full-time employees)
- For large employers (more than 500 employees in 2021), claiming wages paid to employees who provided services to their business. Large employers may only claim wages paid to employees who did not provide services for their business.
- Claiming more than the maximum ERTC amount ($5,000 per employee for 2020 and $21,000 per employee for 2021)
- Claiming the credit as a recovery startup business if your annual revenue is greater than $1 million
- Failing to deduct wages paid with Paycheck Protection Program (PPP) loans or Shuttered Venue Operators Grant funds
Watch Out for ERTC Scams
Third-party ERTC processing companies are a leading cause of ERTC tax audits. These companies often promise a refund regardless of a business’s eligibility.
To avoid ERTC scam companies, watch out for these warning signs:
- The company says you qualify without reviewing your tax situation.
- The company won’t provide qualifications for its preparers.
- An ERTC processing company calls you with unsolicited advice or aggressively advertises its services to you.
- The preparer won’t let you review your claim before they file it.
- The company charges a large upfront fee or takes a percentage of your refund as payment.
If a third-party processor filed your claim and you’re concerned they may have committed fraud, you might want to withdraw the claim before the IRS has a chance to process it. You can withdraw your claim at any time, even if it’s currently under audit.
If the IRS sent you a check due to a fraudulent claim, do not cash it. Write “Void” on the back of the check, as well as “ERTC Withdrawal,” along with a note for the reason for return. Return the check and your claim withdrawal request to the IRS Cincinnati Refund Inquiry Unit.
Reliable ERTC Audit Resolution From Dayes Law Firm
It’s much easier to avoid ERTC tax audits than it is to go through one. At Dayes Law Firm, our attorneys can tell you whether you’re eligible and help you mitigate risk factors that could lead to a tax audit for the Employee Retention Tax Credit. And if the IRS is already auditing you, contact us for ERTC audit services immediately.Call 800.503.2000 for your free consultation now.