Does Claiming the ERTC Raise the Risk of an IRS Audit?

September 8, 2023
Dayes Law Firm

Business owners have enough to worry about as it is, and the thought of a potential IRS audit is daunting to consider. If you’re an employer and have already turned in tax returns for 2020 and 2021, it might give you pause to think about doing a lookback to retroactively claim the Employee Retention Tax Credit (ERTC) and potentially raise a red flag. Is this something business owners need to worry about?

Claiming the ERTC and IRS Audits

The ERTC was implemented to encourage businesses to retain their employees during the early months of the COVID-19 pandemic. It applies to quarterly employment taxes businesses were required to pay for tax years 2020 and 2021 and is a fully refundable payroll tax credit. Companies that kept W2 employees on payroll and met certain criteria could receive a maximum of $26,000 per employee.

That’s not an insignificant amount of money, so it’s no surprise that employers want to take advantage of the program if they qualify. But does claiming the ERTC raise the risk of an IRS audit?

IRS is ‘Actively Auditing’ ERTC Claims

As part of a recent news release, IRS Commissioner Danny Werfel noted, “Businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits.”

“There are very specific guidelines around these pandemic-era credits; they are not available to just anyone,” he added. “People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims.”

But simply claiming the ERTC does not automatically trigger an audit from the IRS. As long as you ensure that your documentation meets IRS requirements for claiming the credit, you shouldn’t have too much reason to worry. 

Avoiding an IRS Audit

That doesn’t mean you shouldn’t perform a risk assessment if you do decide to claim the Employee Retention Tax Credit, of course. As long as you follow all eligibility criteria, provide the documentation required, and can prove all of your calculations to claim the credit as needed, you should be able to identify any potential issues with your application and can be thoroughly reassured that you are qualified to claim the ERTC

However, the IRS is known to be conducting audits on ERTC claims, and you could potentially get hit with one anyway, despite your best efforts. If you’re especially nervous about getting your application right, or want some extra protection and defense against a potential audit later, it might be a good idea to work with an ERTC team to apply for the tax credit. 

ERTC Application Assistance 

An ERTC support team, including skilled tax professionals, can assist you with applying for the Employee Retention Tax Credit. Indeed, the experienced ERTC team at Dayes Law Firm and our partners may be able to help – and we can offer a strong audit defense if your ERTC claim is, unfortunately, flagged by the IRS. 

We are more than equipped to assist with an ERTC audit defense as needed, and if we assisted you with your ERTC claim, we will also defend our work at no additional cost to you. We can help make sure you claim the tax credit with accurate documentation in the first place so such a scenario can hopefully be avoided, but if the IRS does decide to conduct an audit into your claim, we’ll be ready. 

Please contact us for a free, no-obligation consultation with a member of our team and see how Dayes Law Firm can help you claim the Employee Retention Tax Credit and aid you in defending your business against any potential ERTC audit. Fill out the form on this page or give us a call to learn more today!