Any business that is considering filing for the ERC or has already received the ERC should take note that the IRS has started auditing the ERC, some even before they are paid. At a recent conference an IRS representative said that the IRS has trained 300 auditors to examine claims involving the ERC. In addition, IRS criminal investigators are looking at taxpayers, enablers and promoters of the credit who stretch the ERC eligibility requirements.
The ERC rules can be very complex, Tax practitioners should expect an IRS examination to focus on ERC eligibility, the computations and whether taxpayers amended tax returns to pay the tax that results from the ERC-related reductions in payroll tax that have the effect of reducing business deductions. Also, you should expect the IRS to ask for payroll journals, health plan expenses, lists of employees and/owners, information supporting the partial suspension of operations test or the gross receipts test and information related to the PPP loan forgiveness and allocation of wages between the PPP and ERC.
If done correctly, the ERC can be a great benefit to a business that needs help. However, if you are considering applying for, have already applied for and/or have already received the credit, now is the time to double-check your analysis, computations, documents and facts. It is better to do it now, not two or three years from now when the IRS is knocking on your door, everyone involved has moved on or retired and the “tax specialist” has disappeared.
A good starting point for any review is IRS Notice 2021-20, Guidance of the Employer Retention Credit under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act.
For questions on this or any other tax-related matters, please feel free to contact Joel Crouch at (214) 749-2456 or firstname.lastname@example.org.