Why Your ERC Claim May Get You Audited!

As many business owners are likely aware, the IRS’s Employee Retention Credit program has faced unprecedented difficulty. Back in 2023, the IRS made the decision to enact a moratorium on new claims processing, and it opened multiple programs for applicants wishing to withdraw their claims or pay back unqualified credits. The deadline for the voluntary disclosure program, in which business owners need to pay back only 80% of funds received, is approaching in March of 2024.

Currently the IRS is scrutinizing those who submitted claims even after the moratorium. There are seven red flags the IRS prioritizes:

1. Too many quarters being claimed.

2. Government orders that don’t qualify.

3. Too many employees and wrong calculations.

4. Business citing supply chain issues.

5. Business claiming ERC for too much of a tax period.

6. Business didn’t pay wages or didn’t exist during eligibility period.

7. Promoter says there’s nothing to lose.

If you fall under these red flags, the IRS may suspect your ERC claim is incorrect and conduct an audit, potentially resulting in penalties. If you have submitted a claim and not received any money, you are encouraged to withdraw from the program. If you have received money from an illegitimate claim, you are encouraged to take part in the IRS’s voluntary disclosure program. We have instructions for both the withdrawal and voluntary disclosure procedures.

Business owners concerned about their ERC claims and in need of the right guidance on how to proceed should reach out to the XQ CPA team for help. We strive to help business owners stay in compliance with IRS regulations. Feel free to call us or schedule an appointment online at the link below.

Phone: 832-295-3353

Online Booking: https://xqcpa-bookme.acuityscheduling.com/schedule.php

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Sources:

https://www.irs.gov/newsroom/irs-shares-7-warning-signs-employee-retention-credit-claims-may-be-incorrect-urges-businesses-to-revisit-eligibility-resolve-issues-now-before-march-22

https://www.journalofaccountancy.com/news/2024/feb/7-warning-signs-that-an-erc-claim-is-questionable-from-irs.html