Many businesses are applying for the Employee Retention Credit but can the IRS ERC claim be denied?
The IRS ERC application might not necessarily be denied, but trying to claim too much could trigger an audit of the amended tax filing. Let’s look a little deeper into this potential situation.
Employee Retention Credit Bonus for Qualified Businesses
The Employee Retention Credit (ERC, also known as ERTC) began in March 2020. At first, employers did not pay much attention to the program due to limited information and uncertainty.
Many taxpayers did not focus on ERC due to claiming benefits under the Paycheck Protection Program (PPP). The initial ERC policies prohibited taxpayers from claiming both the PPP and the Employee Retention Credit.
However, lifting the prohibition nine months after the program launch opened doors for many employers to claim tax credits. Will IRS ERC be denied under any circumstances?
It is the top concern for many employers looking to claim tax credits for employee retention. Since the IRS qualification rules for ERTC are complex, many factors may lead to IRS denial while claiming benefits. We will dive into the details to understand the different reasons that may get in your way of claiming ERTC funds.
What Triggers an IRS ERC Claim to be Denied?
The Paycheck Protection Program (PPP) has a complex initial process to verify recipients’ data for case approvals. Once verified, applicants receive the forgivable loan to carry out their expenses.
However, IRS ERC claims may be tricky for many employers. The upfront approval makes it challenging to understand the complications involved in the process.
Employers may claim their ERTC funds after providing the qualification records. It will take some time to get an IRS ERC refund status.
However, some factors may trigger ERTC audits in the long run.
The IRS could initiate audits on employers receiving ERTC if the information is not properly documented or appears fraudulent.
The qualification records needed for Employee Retention Credit approval include specific information, including company size, employee retention status, partial or complete employment shutdown, and several other factors.
When an employer prepares documentation to claim the employee tax credits, even the slightest errors may raise unprecedented problems for the company.
Many employers may be unaware of the IRS audits triggered by incorrectly filed claims. The post-claim audits may force employers into trouble due to incorrect documents and records.
The majority of businesses filing for the tax credit have a legitamate right to this money, but there are a few companies out there taking advantage of the IRS program.
Most employers realize the importance of maintaining proper company records when the IRS triggers an audit, but some of these businesses are making the IRS be more aware.
It is very important to have all your documents in order if the IRS decides to run an audit on your company down the road.
The only possible solution to avoid IRS penalties is to create fool-proof documentation of your business records. This can be a tricky process you may have to be cautious about.
Want our ERTC experts to look at your paperwork? Fill in the quick qualification form for a free consultation.
Steps to Avoid Claim Denial of IRS Employee Retention Credit
The ease of ERTC claims for employers has helped companies on the one hand. However, it has added more challenges that employers may need to know before they start the process.
Since the program’s launch, employers have had difficulty understanding the complex policies and qualification requirements to claim tax credits. This situation has created Employee Retention Credit companies that have become specialists in helping employers prepare documentation.
Several ERTC companies play outside the rules in claiming tax credits. This could lead businesses open to an IRS audit. This could lead to a denial of their ERTC claims.
Employers must take time to understand the IRS guidelines that sufficiently address essential concerns. It is important to clearly understand the documentation process and work with companies that follow the rules and still get the maximum refunds.
Understanding the rules and regulations before claiming tax credits can help determine you are in compliance.
For instance, trying to apply if your business is too large or even claiming family members incorrectly.
Lacking proof of qualified wages for full-time employees may lead to denied claims when seeking Employee Retention Tax Credit.
Seeking assistance from tax credit firms may come in handy while preparing your qualification records. Not having personal knowledge on the matter may be risky.
Not all tax credit companies take unfair advantage of the employer’s lack of knowledge. Some ERTC-specialized firms offer fool-proof services to maximize your chances of ERTC claims.
Biggest Reasons Employee Retention Tax Credits Are Not Approved
Since the ERTC qualification process is complex, tax credit firms often use claim statements that may quickly lure employers into trusting them. Some firms overstate their abilities to show ample knowledge about ERTC claims.
Others may claim exclusive links with the IRS to advise employers claiming tax credits.
Tax credit firms often lack the most fundamental knowledge, leading employers to either being told they can’t claim the refund or . For instance, a tax credit firm may rely on duplicate taxation memos for multiple businesses. Each business may belong to a different industry and have varying channels of operation. The company size, qualified wages, and transaction methods may differ for each.
When employers place their trust in such tax firms, they most likely face ERTC disapprovals. Tax credit firms may also rely on generic tax documentation that lacks sufficient information or conviction to defend an employer against triggered audits. Moreover, employers often fall prey to absurd claims by tax credit firms. For instance, a tax firm may claim to offer comprehensive support in case of IRS audits.
However, employers later realize they must bear the IRS penalties and refunds.
Another critical factor is indemnification offered by tax advisors. While it may seem like a comprehensive compensation plan for employers, the truth speaks differently. When advisors make indemnification claims, you may remember that it will only be limited to advisor fees. More importantly, tax advisors may indemnify employers by offering to take over the audit process.
When facing audit stress, most employers may allow their tax advisor to adjust the audit to close it in their favor. However, poorly documented company records and lacking evidence may quickly hinder the odds from turning in your favor. Additionally, the tax advisor may ask for an audit support fee, leaving you hanging in the middle.
The inadequate evidence, misleading tax credit advisors, and poorly documented qualification records collectively contribute to the major reasons for tax credit disapprovals.
Using FTCO ERC for Your Filing Needs
If you wonder how to save yourself from ERTC disapproval, using a specialized ERTC CPA firm can be very helpful.
At FTCO ERC we entirely focus on tax credit management for Employee Retention Credit and will file your amended returns accurately.
Seeking assistance from FTCO ERC can keep you ahead of IRS audits. Our ERC tax specialists pay close attention to the documentation process. They go the extra mile to incorporate every detail IRS may inquire about your business.
You can seek a complimentary pre-qualification check for your company by filling out our form with some nonevasive. The questionnaire will only take a minute. More importantly, you can get audit-proof documentation services to avoid IRS penalties and tax credit refunds. If you want to maximize your ERTC claims, contact one of our ERTC experts today.
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