Lessons Learned in Handling ERC Audits: How A Skilled Tax Attorney Can Help

If you’ve been hit with an Employee Retention Credit (ERC) audit, how you handle it could make the difference between getting out of it with paying some money back to the IRS and ending up with a criminal case against you for intentional fraud – or even landing in jail.

That’s why the best thing you can do if you are dealing with an IRS audit, such an ERC audit, is get representation from an experienced IRS audit lawyer.

So, what is the ERC? The ERC was created in early 2020 as part of the federal CARES Act, to incentivize companies that continued to pay employees during the pandemic shutdown or had a significant reduction in gross receipts (less than 50% in the same calendar quarter).

The IRS’s goal with this refundable federal payroll tax credit was to make it possible for eligible businesses to keep running between March 13, 2020 and December 31, 2021.

But the IRS soon found that many ERC claims were improperly made by businesses that either didn’t qualify or that made fraudulently inflated claims. Plus, so-called ERC mills have been scamming businesses to get them to apply for credits even if they don’t meet the rules.

These improper claims have inevitably led to a new type of IRS audit: the ERC audit — which can land your business with significant penalties or even criminal prosecution.

If you’ve been hit with an ERC audit, contact Attorney Sammy Kim now. She has had success representing her clients in ERC audits, helping them reduce penalties and avoid a criminal investigation.

IRS Issues Temporary Moratorium on New ERC Claims – But Audits Continue

As a result of the significant number of improper claims and concerns about scams, IRS has announced a temporary moratorium on processing new ERC claims through at least the end of 2023.

The agency has also developed a withdrawal process that allows certain employers to withdraw and ERC claim and avoid future repayment, interest and penalties, if they have not yet received a refund and now question the accuracy of their claim.

The IRS has also made it clear that criminal action is still possible: “Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.”

The IRS said that it has a settlement program in the works that might allow businesses to reduce or avoid penalties and future compliance actions.

Lessons Learned from A Tax Attorney Handling ERC Audits

Here are some key takeaways from the experience of a skilled tax lawyer who represents clients in ERC audits:

• An ERC audit is essentially an employment tax audit: An ERC Audit is a type of employment tax audit conducted by the IRS. The IRS will review Form 941 and corporate tax returns to evaluate whether your business met the qualifications for the ERC, and whether you made claims for more money than you are rightfully owed.
• As an employment tax audit, your ERC audit can expose you to audits over other employment tax issues: Once you’re exposed to review, it’s a slippery slope. For example, an ERC audit could lead to questions whether you “double dipped” by both making ERC claims and taking a PPP (Paycheck Protection Program) loan. It could also open you up to reviews of your employees’ tax deposits or audits over worker misclassification as independent contractors.
• Like any IRS audit, a better result in an ERC audit depends on careful attention to detail and negotiation: Be sure to provide all supporting documents in an organized matter. Successfully defending an ERC audit requires knowing the rules and the way revenue agents handle these matters. An IRS audit attorney can help a business navigate this complex type of audit.
• Avoid exposure to a criminal investigation: The goal of an experienced tax attorney is to help you get your ERC audit sorted as a civil matter – and avoid a criminal case.
• Meet all deadlines and get your case resolved as quickly as you can: It is very important to get your ERC audit handled in a reasonable timeframe by meeting all deadlines and communicating consistently with the IRS revenue agent. The longer the case lingers, the more time there is for new issues to arise.

Talk To an Expert ERC Audit Lawyer About Your Case

Resolving an ERC audit is complicated, and the risks to you and your business could be serious if you don’t have an experienced tax audit attorney.

And, when the audit is over, a tax attorney can help minimize your tax liability and support you in negotiating a settlement of your IRS tax debt using an offer in compromise or installment agreement, reducing penalties and interest, among other possibilities.

If you need an ERC audit lawyer or want to reduce what you owe the IRS, talk to Attorney Sammy Kim now.