The Employee Retention Credit (also known as ERC and ERTC) is a life saver for so many businesses giving them an opportunity to claim money back from the government. There are concerns about getting an IRS ERC audit.
This is always a possibility, but we feel that if done correctly, there is no greater risk than with normal business filing.
Worries About an ERC Audit
If you are an employer who claimed a tax credit and want to know the answer to this question, we have all you need to know. The IRS issued proper guidelines and FAQs for employers to understand the qualification details before claiming tax credits. The listed information is to facilitate employers beforehand to avoid penalties down the road.
The Employee Retention Tax Credit (ERTC) is an optimal solution to overcome employee retention problems. The program helped employers with financial support to allocate credit to employees for qualified wages and health insurance.
Employers must adhere to multiple qualification guidelines to claim the tax credit, including employer size, employment suspension status, impact on employee wages and insurance, and more.
As an employer looking to claim tax credits, you may need to prepare your company records carefully to avoid facing IRS penalties. Many factors come into play while creating documentation proof to claim ERTC funds.
While some employers have proper knowledge of tax credit management, many companies face legal problems due to poor book management. Let’s dive into the details for a better understanding.
Will Employee Retention Credit Trigger an Audit?
Claiming tax credits for employee retention attracts many employers due to their upfront approval. When employers face difficult times, they look for alternative ways to overcome the employment challenges and retain their workforce.
Employers often overlook the importance of maintaining qualification records crucial in an IRS ERC audit. While large companies have a comprehensive structure with more margin to bear market fluctuations, small and medium business entities face much more significant challenges.
Other programs, like the Paycheck Protection Program (PPP), were relatively difficult to claim. Such programs require an initial review by the participants and the U.S. Small Business Administration for approval.
The process can take time and may lead to further complications in the verification process. On the other hand, the upfront approval of ERTC claims serves as a legitimate source of tax credits at the time of the need.
The problem begins when employers focus on the bright side of the picture only. Not many employers may know, but the ERC claims may require the recipients to provide proof of their qualifications later down the road.
In the same context, ERTC recipients often misunderstand tax credits. They only focus on the initial qualification process and overlook the importance of records in the long run.
Any suspicious information may trigger an ERC audit. If triggered, employers may have to provide sufficient proof to the authorities to justify their tax credit claims. Failing to do so may land them into uncalled-for trouble.
Employers must prepare themselves for an audit that may occur indefinitely after claiming employee tax credits.
Click here if you would like a free qualification evaluation.
Will Your ERC Claim Hold Up to an Audit?
The Employee Retention Tax Credit limitations to three years from the applicable filing Quarter. So the program is available till April 2025, depending on the Quarter filed for.
The IRS has a statute of limitation that extends out 5 years. Understanding what the extension period means for employers who claimed tax credits in the past couple of years is crucial.
For example, if an employer claimed a tax credit in 2021, the authorities might trigger an ERC audit as late as 2026.
Suppose the authorities ask the employer to provide (required) proof of qualifications after five years. In that case, the employer may find it difficult to defend their case due to various factors, including poor recollection of the event.
Most businesses land into legal trouble when they fail to provide evidence supporting their financial activities in the past years.
Suppose you claimed your ERTC in the past few years. In that case, you must maintain a proper record of your business transactions, company size, and employee records to justify your qualifications when needed.
Employers often get frustrated maintaining minor details over the years. Some small businesses hire bookkeepers for a specific period to maintain important records. Others manage all the documentation by themselves.
Regardless of your chosen method, you may need a dependable system to defend your ERC claims. Failing to provide sufficient proof of qualification records may lead you to IRS penalties or force you to return the claimed funds in the name of tax credits for employee retention.
Facing IRS penalties may put your company in significant financial risk. You may have to invest a good deal of money to clear your company’s name.
A significant concern that tops the above information is knowing if you will be audited for ERTC claims some years from now. T
he most recommended solution to avoid future problems for your company is to maintain every detail of your business transactions, company size fluctuations, employee recruitment and termination records, and any other data that the IRS may require for running ERTC audits.
By compiling documentation of daily records, you can save yourself from the legal trouble that follows ERTC audits. Here, it is worth mentioning that many tax credit firms may take unfair advantage of the gray areas leading to ERC audits.
You may not find many firms emphasizing the importance of maintaining qualification records. However, the key is not to fall prey to such entities.
Benefits of Using ERC Experts to Have Your Back
Small business owners often lack the proper guidance to avoid legal troubles involving tax credits. If you can relate to this problem, seeking assistance from an ERC consultant can help you.
If you wonder what makes one different from those who do not emphasize the importance of maintaining records, we have a few factors to bring to your attention.
The most important is the area of expertise. Not every CPA firm may specialize in ERTC claims. While many CPA firms offer assistance with tax credit management, they may not deliver what they claim.
This is why using the services of an ERTC expert is critical. They can entirely focus on the ins and outs of the required qualifications for tax credit claims.
ERTC experts can help you identify the problems with your qualification records and help you choose a specific path to avoid IRS issues. As an eligible employer, you may not be able to see through the minor details that may force you into difficulties.
ERTC companies can effectively guide you on your rights and help you maintain thorough documentation of your qualification records.
Another critical factor that distinguishes an ERTC professional from regular tax management firms is timeline management. Since tax credit information involves sensitive data, slight mismanagement may create problems for you.
Moreover, if a consultant takes too long to offer solutions, you may no longer need or want their ERTC services.
A trained consultant strictly manages the timelines to create audit-proof documentation for your business. The documentation complies with the IRS guidelines to keep you the least likely of the triggered audits.
Such companies only specialize in ERTC management for employers. You do not have to worry about incompetent resources that may create further problems. We have established a reputable status in the market for delivering the most accurate filings.
FTCO ERC Experts Can Help
Whether you need help maximizing your Employee Retention Tax Credits or preparing precise qualification records, FTCO ERC can take the burden off your shoulders.
Unlike many firms, we give you a complimentary ERC calculation by filling out the form or giving us a call at 360 641-7709. We are also available for any questions or concerns.
Your business can avoid upfront payments and experience an expedited refund starting today.
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We wish you the best in getting the biggest tax refund possible. If you need our help or have questions, please feel free to contact us.