Eligibility Assessment for the ERC in Phoenix

If your business has claimed the Employee Retention Credit (ERC), you must know that the Internal Revenue Service (IRS) is significantly increasing its audit and enforcement activity related to these claims. The IRS has shifted its focus from processing new claims to reviewing and auditing previously filed claims due to widespread fraud concerns.

Audits of thousands of businesses have taken place, and more are currently active. The IRS is emphasizing the importance of proper recordkeeping to support eligibility assessment for ERC in Phoenix, and intends to review and potentially reclaim improperly paid ERC cases. Contact our ERC compliance attorneys who could help you understand the complexities of the regulations and develop a strong case if challenges arise.

What Is the ERC?

The ERC was a refundable payroll tax credit designed to encourage eligible employers to retain and pay employees during the COVID-19 pandemic. The purpose of this program was to provide financial assistance to businesses and tax-exempt organizations by giving them incentives to keep employees on the payroll. The ERC was a refundable tax credit claimed against certain employment taxes, such as Social Security tax.

Phoenix businesses could be assessed as eligible for the ERC if they experienced a full or partial suspension of operations due to a government order related to COVID-19, suffered a significant decline in gross receipts during specified periods in 2020 and 2021, or qualified as a recovery startup business in the third or fourth quarters of 2021.

In 2020, the IRS paid 50 percent of qualified wages to eligible employees, up to $10,000 per employee annually, which resulted in a maximum credit of $5,000 per employee. In 2021, they paid 70 percent of qualified wages to eligible workers, up to $10,000 per employee per quarter, for a maximum credit of $7,000 per employee per quarter. The maximum total credit reached $26,000 per worker.

Do I Have to Repay the ERC Credit?

The ERC was a tax credit, not a loan, and did not have to be repaid. While the Infrastructure Investment and Jobs Act effectively ended the ERC program for most businesses in late 2021, eligible employers could still claim the credit for prior quarters by filing an amended tax return.

The deadline to file claims for 2021 was April 15, 2025, though the 2025 budget bill retroactively pushed it back to January 31, 2024 (subject to potential court intervention). The IRS has expressed concern about improper ERC claims and is now closely reviewing filed tax returns, encouraging employers to review their claims and withdraw any incorrect submissions.

Understanding the ERC’s Eligibility Assessment

The IRS is actively addressing compliance issues related to the ERC program and scrutinizing claims. There is a significant backlog of unprocessed ERC claims. The IRS is concentrating on claims with the highest risk of being incorrect, but also on claims least likely to be incorrect for quicker processing. Businesses that received ERC refunds should be aware of the statute of limitations for potential IRS “clawbacks” (recapture of erroneous refunds).

Business owners facing audits and reviews of their ERC claims should immediately consult an attorney for legal guidance. Determining ERC eligibility in Phoenix can be complex, involving factors such as a significant decline in gross receipts or full or partial suspension of business operations due to a government order. If the IRS challenges your claim, you may need to demonstrate that you met the criteria.

Our attorneys could help you navigate the process, respond to IRS inquiries, and represent you in appeals or litigation for a denied claim. Work with our legal team for assistance in evaluating the strength of your ERC claim based on the regulations and advise whether litigation is appropriate to secure your refund.

Contact Our Law Firm in Phoenix To Learn How the ERC Assesses Your Suitability

Navigating an ERC audit can be complex and stressful. A qualified attorney can provide invaluable guidance, help you understand your rights, and represent you in communication with the IRS, including any eligibility assessment for ERC in Phoenix.

Despite efforts to reduce the backlog, a significant number of ERC claims remain unprocessed, leading to continued delays. Auditors are scrutinizing every claim to verify that businesses met the eligibility criteria and calculated the credit correctly. Contact us today if you have questions or concerns about a potential ERC audit.