ERC Claim Calculation in Phoenix

Although the deadline for filing new Employee Retention Credit (ERC) claims has passed, the Internal Revenue Service (IRS) is still processing a significant number of ERC claims filed before the deadline. The IRS is also increasing scrutiny and audits of ERC claims due to concerns about fraud and incorrect claims.

A knowledgeable ERC compliance attorney could help you understand your rights and the legal framework surrounding audits, ensuring you are treated fairly throughout the process. If your claim is denied or underpaid, and you wish to pursue an ERC refund action, a lawyer could also assist with such matters as a revised ERC claim calculation in Phoenix. Call us now to find out more.

Understanding the Calculation Methodology

Businesses could qualify for the ERC if their gross receipts decreased significantly or if they experienced a full or partial suspension of operations due to a government order. The specific criteria for a significant decrease in gross receipts differed between 2020 and 2021.

The credit amount is calculated as a percentage of qualified wages, with different percentages and maximum wage limits for 2020 and 2021. Recovery startup businesses had a specific maximum credit limit in 2021, which they could claim by filing Form 941-X. If they did so, they should then have reduced the total wages they reported on their income tax returns by the amount received.

The definition of qualified wages for the purposes of ERC, and the rules for calculating them, depended on two things: the number of employees the business had in 2019 and whether it paid the wages in 2020 or 2021. Qualified wages generally include regular wages, tips, and the employer’s share of qualified health plan expenses.

What To Do if the IRS Selects Your ERC Claim for Audit

The IRS can audit a Phoenix business’s ERC claim if that business did not calculate its claim correctly. If this happens to your business, seek guidance from a skilled attorney to understand your options, which may include amending your filing or withdrawing your claim. The IRS has established an ERC Voluntary Disclosure Program to allow businesses to retrieve and correct improperly filed claims.

If the IRS does select your ERC claim for audit, do not panic; instead, act promptly. Failing to respond to the notice or delaying your response could result in additional scrutiny and penalties. An attorney could help you understand your rights, prepare your defense, communicate with the IRS on your behalf, and compile all documents related to your ERC claim. Key documents typically include:

• Payroll records
• Tax returns (especially Forms 941 and 941-X)
• Proof of business disruptions due to government orders (e.g., written explanations, business records)
• Evidence of a significant decrease in gross receipts (if applicable)
• Documentation related to Paycheck Protection Program (PPP) loans that demonstrates the business has not received another form of compensation
• Worksheets supporting your ERC calculations
• Copies of amended income tax returns showing the correct reduction in wage expenses

There are numerous potential outcomes of an audit. The IRS may accept your claim calculation after additional review, or it may disallow some or all of the credit, resulting in more taxes and possibly penalties. If you disagree with the outcome, an attorney could help you appeal the decision or pursue legal action.

Call Our Phoenix Attorneys to Ensure Accurate ERC Claim Calculations

The IRS has increased its scrutiny of ERC claims due to concerns about potential fraud, particularly claims submitted by businesses that did not meet the eligibility requirements or were misled by unofficial third-party promoters. A lawyer could help you understand your rights if you are facing an ERC audit, ensuring you have all the necessary documentation to support your ERC claim and helping you prepare for the IRS review.

Our attorneys could also help review your ERC claim calculation in Phoenix, as many auditors are focusing on the accuracy of the calculated credit amount. If you believe you have grounds to take legal action because the IRS rejected or underpaid your ERC claim, we could help you determine the best way forward. Contact our team today to receive your confidential, one-on-one legal consultation.