Several companies recently notified us that their applications for employee retention credit (ERC) are being audited by the IRS. Keep in mind that just because the IRS processed a credit does not mean that it has audited and accepted the claim. The Consolidated Appropriations Act allowed five years for the IRS to return and audit ERC claims, so there is a long period available for them to review the claims. However, for essential businesses, the IRS only allows potential ERTC eligibility if a nominal portion of their business was affected due to a government mandate.
Even some tax professionals have joined the fight, wrongly expressing and exaggerating the data on the ERTC to ensure that every client qualifies, regardless of their actual ERTC eligibility. These retroactive updates make the ERTC more accessible to companies struggling to find a financial base after two tumultuous years. It is possible and even likely that the IRS will publish guidance in the future and create an auditing process around the ERTC. Thorough documentation is essential to ensure that the likely increase in ERTC audits is not a problem for you.
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