The Employee Retention Credit (ERC) program was established during the pandemic to incentivize businesses to retain employees during that time period. However, due to the complexity of the rules and many employers making improper claims, the IRS has been closely examining how this program is being utilized. This has led to a dramatic increase in ERC audits and, in cases involving fraudulent claims, criminal prosecution.
If your business has utilized ERC credits and received notice of an IRS audit, or if you are concerned about your business’s participation in the program, our team of tax professionals at Highland Tax Group can help.
What Are Some High-Risk ERC Claims?
Three of the most common bases for IRS scrutiny include:
Incorrect Determination of Eligibility – For a business to be eligible to take ERC credits, it must have experienced either a significant decline in gross receipts or a full or partial shutdown due to a governmental order. A frequent mistake that many businesses have made is the question of what constitutes a governmental order. The order must have been a legal, enforceable directive from the federal government or the applicable state or local government that limited commerce, travel, or group meetings. A general recommendation or news report describing pandemic restrictions does not qualify.
Supply Chain Disruptions – IRS rules for this specific credit are very narrow. A business must have experienced supply chain disruptions based on a governmental order that prevented its suppliers from delivering necessary goods. A delay in delivery or an increase in costs are not grounds for utilizing the credit.
Overstating Qualified Wages – Wages paid to majority owners (50% or greater ownership interest) are not entitled to the credit. In addition, a business cannot claim wages that were used for Paycheck Protection Program (PPP) loan forgiveness.
Highland Tax Group Has the Experience You Need To Handle an IRS Audit
An IRS audit can be stressful. You need a strong, experienced team by your side to guide you through the process and, if necessary, negotiate a positive outcome. Call the Highland Tax Group to discuss your case with a member of our qualified tax team today.