When the Employee Retention Tax Credit (ERTC), also called the Employee Retention Credit (ERC), was first introduced to help businesses stay afloat during the COVID-19 crisis, no one could have predicted its impact. While it had a slow start in 2020 due to the strict qualification requirements, more businesses became eligible for tax credits with the introduction of the Consolidated Appropriations Act in 2021.
This act expanded ERTC benefits to businesses that didn’t have access to it before, aiding thousands of employers and employees around the country. The IRS plans to collect ERTC data through examinations and audits of these claims.
If your business has already claimed or plans to claim ERTC benefits and you’re wondering how this process might impact you, here are some tips to keep in mind.
Avoid Suspicious Sources of Information
Some business owners will turn to illegitimate or overpriced tax credit companies for “insider” information. Don’t waste your money. Avoid any companies that claim to have unique knowledge of ERTC. All ERTC information is available free of charge through the IRS.
Determine the Legitimacy of Tax Credit Companies
If you’re considering working with a tax credit company, ask the following questions:
- Does this advice feel too good to be true or biased?
- Are their descriptions of the ERTC qualification tests broad or overly simplistic?
- Do they claim to have training from the IRS without proof?
- Do they refuse to share information with outsider advisors?
Some companies make false claims about detailed information or audit support they cannot deliver. If you have questions about ERTC about your particular business, the better option is to talk to a professional tax attorney.
Understand ERTC Eligibility
If you filed for ERTC in 2020 or 2021, the eligibility information has likely faded in your mind. Briefing yourself on the details you may have forgotten will help you prepare if the IRS requests more information.
The gross receipts test and the suspension of operations tests are the two eligibility tests for ERTC qualification.
The gross receipts test is the more objective of the two, as it requires you to provide proof of a decline in your gross receipts in either 2020 or the first three quarters of 2021. This test excludes any income from PPP loans.
Businesses can use the suspension of operations test if they do not meet the qualifications for the gross receipts test. This is the more subjective test because it doesn’t involve exact calculations. As an employer, you simply provide proof that a government-ordered shutdown resulted in the suspension or halt of business operations.
You can argue this by asserting employees were unable to work comparably through remote work and must further prove that this suspension of activity had a significant effect on the business’s revenue.
Prepare for IRS ERTC Audits
If the IRS audits your ERTC claim, it will send Information Document Requests and audit notices. To prepare, it’s smart to gather the documentation you’ll need beforehand.
Organize all ERTC data relevant to your claim: the amount of revenue you generated, average full-time employees per quarter, and financial losses.
The 2020 ERTC period took place from March 13, 2020, to December 31, 2020, and the 2021 ERTC period ended on September 30, 2021. As you go through your records for these periods, you can verify the accuracy of your qualified wages as well.
Contact a Professional Tax Attorney at Dayes Law Firm
At Dayes Law Firm, we understand that an ERTC data verification request can be stressful.
Our ERC team has assisted businesses in filing for over $250 million in ERC claims. If you’re looking for guidance in the application or IRS audit process, call us at (800) 503-2000 for a free consultation today.