The last thing business owners want to deal with is increased scrutiny from the IRS. Concerns about being audited may keep some employers from claiming the Employee Retention Tax Credit – also known as the ERTC or ERC – but if you have a trusted team of tax professionals on your side helping you claim it, you should have little reason to be concerned. However, if the IRS does flag or disallow your ERTC claim, you may have options.

The IRS and ERTC Issues

The ERTC is a refundable payroll tax credit certain businesses can claim on qualified wages paid to their employees if they kept staff on payroll in spite of major financial setbacks in 2020 and 2021 during the height of the COVID-19 pandemic.

The tax credit is available to employers that experienced either a full or partial shutdown of operations because of a governmental order related to COVID-19, or if a business experienced a decline in gross receipts in 2020 or 2021 when compared to the same quarter in 2019.

Businesses may be able to seek a refund of up to $26,000 per employee for the eligibility period in 2020 and 2021, which is not an insignificant amount of money. Unfortunately, some businesses that do not qualify for the credit have tried to claim it anyway, causing the IRS to crack down on applications. In fact, the agency ordered a “moratorium on processing of new claims through year’s end” for ERTC claims on September 14 amid concerns of “improper” or “ineligible” applications being sent to the agency.

There is always a chance that the IRS could audit an ERTC filing and potentially reduce the credit, even if you think you completed the process honestly and successfully. Or, in a worst-case scenario, the agency could disallow your ERTC claim altogether.

ERTC Fines and Fees

If the IRS reduces or totally disallows your Employee Retention Tax Credit claim, you may have to repay part or all of the refund you claimed. The amount you pay back to the agency may also include interest. 

If your claim is audited and the amount of your ERTC is reduced, the penalties could vary from a 20-percent “accuracy-related penalty” to a 75-percent penalty if the IRS asserts civil fraud by the employer, Bloomberg Tax reported. That’s a pretty scary possibility, so what can you do to prevent the IRS from pointing the finger of fraud at you or disallowing your ERTC claim?

To better protect your claim and your business, you might want to work with a trusted tax professional on your ERTC claim. The team at Dayes Law Firm, for instance, has plenty of experience in helping businesses claim the credit, and can offer you a free consultation to see how we can assist you, too. 

Plus, Dayes Law Firm offers a strong audit defense if you find yourself audited by the IRS. Our firm will defend any businesses we’ve assisted with an ERTC audit or if there is ever a request for an audit in the future, and we can help you if the IRS reduces, disallows, or audits your ERTC claim.

If the IRS has disallowed your Employee Retention Tax Credit claim, Dayes Law Firm might be able to help. Give us a call at (800) 503-2000 today to learn more.