Goldburd | Goldburd McCone LLP

For nationwide tax guidance, call:
212-302-9400 or toll-free at 844-653-2873.

Goldburd | Goldburd McCone LLP

For nationwide tax guidance, call: 212-302-9400 or toll-free at 844-653-2873.

Serving Individual And Corporate Tax Clients Nationwide From Our New York, New Jersey, Florida And California Offices

Steven Goldburd and Benjamin A Goldburd

Since 1983, our tax firm has skillfully represented individuals and corporations across the United States and around the globe from our offices in New York, New Jersey, California and Florida.

IRS takes aggressive approach during ERC audits: 3 things to know

On Behalf of | Jun 10, 2024 | Business Tax, Tax Audits

The Internal Revenue Service (IRS) has made it clear that it will aggressively pursue those it claims “erroneously” attempt to take advantage of the Employee Retention Credit (ERC). As of March 15, the agency reported over 22,000 improper claims.

#1: What is the ERC?

The ERC is a tax credit that lawmakers intended to help small businesses survive the financial strains of the COVID-19 pandemic. It provided funds to help offset the expense of businesses who meet qualifications, which include continued pay to employees when the business was either shut down due to the pandemic, a gross decline in 2020 and 2021, or qualified as a recovery startup business for the third or fourth quarters of 2021.

#2: How does the IRS decide if an audit is necessary?

Various factors can trigger an ERC audit. Some things the IRS looks for include:

  • Number of quarters filed. The IRS will review how many quarters the business filed to receive the ERC. They may pursue an audit if the business filed for all quarters the credit was offered.
  • Operation matters, not order. The IRS will also review whether the business suffered a decrease in operations, a key eligibility requirement. The presence of a government order that could impact business operations is not enough to qualify. The business must suffer as stated within the eligibility requirements.
  • Improper calculations. The credit applies to qualified wages — which may not translate to all wages paid. It is important to carefully review the rules. A failure to follow eligibility rules can trigger an audit.

These are just a few of the more common things the IRS will look for when reviewing claims.

#3: What should I do if I am the subject of an ERC audit?

It is important to carefully review any notifications sent by the IRS. The IRS generally sends these through traditional mailings. Be wary of any communication sent via email, text, or other method as it may be a scam.

The agency notes that thus far it has sent more than 12,000 notifications to recapture the ERC credit for 2020. These notifications claim that the business needs to repay the entire ERC as well as additional penalties and interest. The agency has also sent additional notifications claiming a portion of the ERC credit and plans to send additional letters for the 2021 tax year in coming months.

When reviewing the correspondence, pay careful attention to any dates. Abiding by these deadlines helps to preserve your options for moving forward.

Thankfully, you do not have to go through this process on your own. You can seek legal counsel to help guide you through this process and better ensure a more favorable outcome. It is important to note that this is a niche area of tax law. The attorneys at Goldburd McCone have experience in this area of law and can advocate for your interests during this difficult time.