Across the country, small business owners are receiving worrying IRS requests for information in their mail—official Information Document Requests (IDRs) regarding a tax credit for small businesses known as the Employee Retention Tax Credit, or ERC, that was made available as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020.
The ERC was a lifeline thrown to many struggling businesses during the pandemic, along with the similar Paycheck Protection Program (PPP). Originally, the ERC and PPP were mutually exclusive—you couldn’t claim ERC tax credits if you’d already taken out a forgivable PPP loan. However, in 2021, that requirement was lifted, leading many businesses to claim ERC credits.
Now some of those businesses who claimed ERC tax credits have been notified that the IRS is closely scrutinizing their ERC claims. This is only the beginning, as the IRS plans to cast a wide net in a sweeping ERC audit program.
If you’ve claimed ERC credits, it’s possible you could find yourself facing an ERC audit by the IRS in the future. An audit of your ERC claim does not automatically mean you have done anything wrong. However, you will need to be prepared.
At Wiggam Law, we’re here to stand by our clients in the event of an ERC audit, helping small business owners like you assess their audit risk, prepare documentation for an ongoing audit, and defend themselves at their audit hearing.
Why is the IRS conducting ERC audits?
In mid-2022, the IRS announced that it would be conducting audits of ERC claims due to many businesses claiming tax credits through the program that they were not eligible for. The IRS will be casting a very wide net regarding the targets of ERC audits and is likely to review most ERC claims over the next few years.
The reason for these IRS ERC audits has to do with the rampant spread of misinformation regarding the ERC that began to circulate after the credit became widely available to businesses that had already taken out PPP loans. Many small business owners who were interested in claiming ERC credits were taken advantage of by an explosion of unqualified agents working for “ERC mills” who falsely claimed that they were eligible for ERC tax savings.
Businesses eligible for claiming ERC must meet specific criteria regarding how they were financially affected by the COVID-19 pandemic and official government authorities’ pandemic response operations. However, ERC mills would make sweeping generalizations about small business owners’ eligibility for the tax credits and encourage their clients to claim large tax savings under the ERC program in exchange for large contingency fees.
In our ERC whitepaper, you’ll learn about the common warning signs that you may have been taken advantage of by an ERC mill, as well as what you can do to protect yourself in the event of an ERC audit.
If you think you may have been taken advantage of by an ERC mill, getting a second opinion from a trusted tax professional is essential for understanding your risk of an ERC audit and what you can do to better defend yourself.
Getting a second opinion involves having your initial claim and supporting documentation for it thoroughly reviewed so that you can assess your risk of an ERC audit and take steps to prepare for one.
Does being audited mean you owe money to the IRS?
If you’ve received an official notification from the IRS regarding ERC credit you claimed in 2021 or 2022, don’t panic. Audits are frightening ordeals, but being notified of an audit on its own does not mean you’ve done anything wrong. It doesn’t necessarily mean your ERC claim was fraudulent.
A business owner found to have claimed ERC credit they are not eligible for would be obligated to pay back the tax credit they claimed, plus any incurred interest and penalties.
With seasoned tax professionals by your side, you can defend yourself in an audit. Even if the IRS has found issues with your ERC claim, a good audit defense can be the difference between a good, bad, or ugly outcome.
What to Do for an ERC Tax Credit Audit
If you’re at high risk of an ERC audit or have already received an Information Document Request from the IRS regarding your ERC claim, the first thing you should do is reach out to a tax professional to prepare your ERC audit defense.
Having a tax professional at your side means you have someone who will assist you and zealously defend you through every step of the audit process.
At Wiggam Law, our mission is to tackle the tough tax law cases no one else wants to take. Our team of expert tax attorneys are dedicated to bringing years of expertise dealing with the IRS to help each of our clients sleep soundly again. We treat each of our clients like family and do our utmost to help our clients put an end to the hassle and stress and preserve what is important to them.
When you choose Wiggam Law for your ERC audit defense, you take on a team that will make your problems our problems. We’ll provide expert counsel and assist in document review, help you find legitimate paths to bolster your claim for ERC credit if possible, negotiate with the IRS on your behalf, and do everything in our power to ensure the best outcome possible for your ERC audit.
If you need help regarding an ongoing or potential ERC audit, contact us at (470) 347-1842 or via our website to schedule your case consultation: