The Internal Revenue Service (IRS) is actively engaged in auditing employee retention credit (ERC) claims nationwide. The IRS has expressed significant concern regarding improper ERC claims and is increasing scrutiny of questionable submissions.
It is conducting audits to ensure compliance with eligibility criteria, prevent fraud, and verify the accuracy of claimed credits. If the IRS contacts you about an audit for your ERC claim, you must carefully consider it and respond promptly. Contact our attorneys who assist with document preparation for ERC in Phoenix and offer representation and support during an audit.
Navigating the Complexities of ERC Claims
The ERC was a refundable payroll tax credit established under the Coronavirus Aid, Relief, and Economic Security Act in 2020 to encourage businesses to keep employees on their payroll during the COVID-19 pandemic. Employers could reduce their federal tax deposits with the ERC, and if the credit exceeded their deposits, they would receive a refund.
The IRS has already implemented a moratorium on processing new ERC claims due to the high volume of claims and concerns about fraud. While this moratorium was in place, there has been limited administrative movement for previously validated claims. Despite processing thousands of cases, it still faces a significant backlog of unprocessed ERC claims.
The IRS has been sending out disallowance letters for claims deemed incorrect, and affected Phoenix business owners must respond to it immediately to preserve appeals rights and compile proper ERC documentation. Contact our lawyers who are experienced with handling IRS audits and could help your business if you are facing an improper ERC claim accusation.
What Documents Should I Prepare for the ERC?
The IRS is working through the backlog of ERC claims but it is also focused on compliance, which means it is crucial for Phoenix businesses to have thorough document preparation. This means that even if your claim has not been fully processed yet, you might receive an audit. Proper documentation proves your eligibility for the ERC, which can help avoid disallowance notices and potential penalties.
If your claim is questioned, having clear and comprehensive records is essential for presenting a strong case during an audit or appeal process. Key documents to prepare and preserve for ERC claims and audits include:
- Detailed documentation of paid employee wages, including tax forms
- Evidence supporting your claim’s calculation, including details on eligible expenses, qualified wages, and gross receipts
- Income statements, balance sheets, and cash flow statements
- Records, such as employment contracts and job descriptions to verify employee eligibility
- Business income tax returns (such as Schedule C, Form 1065, or Form 1120-C or S) and employment tax returns (Forms 941 or 941-X)
- Articles of incorporation, business licenses, and other relevant contracts
- Documentation of orders if you based your ERC claim on government-mandated shutdowns or significant decline in business operations
- Documents proving that you did not claim ERC on the same wages used for Paycheck Protection Program (PPP) loan forgiveness if you also participated in the PPP
Be sure to maintain any other records that support your ERC claim and credit calculations. If your business is facing an ERC audit, you will need to gather and present various documents to demonstrate your eligibility and your claimed credit’s accuracy.
An experienced attorney could help you organize the necessary documentation, ensuring it is relevant and compliant with IRS guidelines. We could also navigate the complexities of tax laws, ensuring your strategy is aligned with current regulations and minimizing the risk of compliance errors.
Contact a Phoenix Attorney About Assembling the Proper ERC Documents
The processing pace remains slow due to the IRS’s increased scrutiny and efforts to prevent fraudulent claims, and ERC audits are becoming increasingly common. Processing delays are expected to continue into 2026 because of the IRS’s limited capacity and need for scrutiny. The IRS is carefully reviewing claims to ensure only eligible businesses receive refunds.
The ERC program’s complexity and the IRS’s resource constraints contribute to the slow processing times, while legitimate businesses face difficulties in checking their claim status. You may need help with documentation preparation for the ERC in Phoenix to respond to an IRS audit, or if your ERC claim was denied or underpaid. Contact us today to request your free consultation and receive more information about rights and responsibilities.
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