More ERC Red Flags the IRS May Audit You For

Ever since the IRS imposed a moratorium on new claims processing of the Employee Retention Credit program, it has encouraged those who recently applied to withdraw their claims. With so many claims being illegitimate and active fraud schemes, the IRS has no choice but to heavily scrutinize existing claims. At this point, there are common “red flags” that can get a claim rejected and the filer audited. Here are several more the IRS recently disclosed.

Your business was essential and operating during the pandemic. As a result, you did not lose out on significant revenue.
You do not have enough proof that government orders partially or fully suspended your business’s operations.
You report your family members’ wages on your ERC claim.
The SBA forgave your PPP loan reported as payroll costs.
You are a large employer and your paid employees provided services.

If these red flags do not apply to you, make sure you check the first set of warning signs we reported back in February. If any of these do apply to you, then the IRS highly recommends you withdraw your claim. Additionally, though the voluntary disclosure program ended back in March, the IRS plans to reopen it soon. If you already received money from the ERC but have since realized you shouldn’t have, the voluntary disclosure program will allow you to pay it back without penalties.

The IRS has also announced it will be following up with more notices of compliance efforts in regards to the ERC, so stay updated with the XQ CPA blog so you do not miss critical news. If you submitted an ERC claim during the pandemic or recently, it is a good idea to get in touch with a tax professional who can advise you if you need to withdraw your claim. At XQ CPA, we can provide you with expert guidance on this situation, so give us a call or use our online scheduler linked below to book a consultation today.

Phone: 832-295-3353

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Sources:

https://www.irs.gov/newsroom/irs-shares-more-warning-signs-of-incorrect-claims-for-the-employee-retention-credit-urges-businesses-to-proactively-resolve-erroneous-claims-to-avoid-penalties-interest-audit