Will IRS Deny ERTC Claim?


The Employee Retention Tax Credit (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 ERTC due to claiming benefits under the Paycheck Protection Program (PPP). The initial ERTC policies prohibited taxpayers from claiming tax credits.

However, lifting the prohibition nine months after the program launch opened doors for many employers to claim tax credits. Will IRS deny ERTC under any circumstances?

It is the top concern for many employers looking to claim tax credits for employee retention. Since the 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.

Will IRS Deny ERTC Claim

What Are the Triggers?

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, ERTC 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. However, some factors may trigger ERTC audits in the long run. Typically, the IRS triggers audits on employers receiving ERTC due to unjustifiable information provided by the employer in the first place. The qualification records needed for ERTC 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 ERTC funds, even the slightest errors may raise unprecedented problems for the company. Many employers may be unaware of the IRS audits on ERTC claims. The post-claim audits may force employers into trouble due to poor recollection of events and the lack of minor documented records.

Most employers realize the importance of maintaining proper company records when the IRS triggers an audit. Suppose you claimed ERTC funds in 2020; if the IRS runs an audit on your company in 2023, you may not be able to do much about collecting sufficient proof to defend your claim.

The only possible solution to avoid IRS penalties and return the claimed funds is to create fool-proof documentation of your business records from the day you receive ERTC funds. The preparation of fool-proof documentation is another tricky process you may have to be cautious about. We have added more information in the next section for your understanding.

How to Avoid ERTC Claim Being Denied?

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 beforehand. Since the program’s launch, employers have had difficulty understanding the complex policies and qualification requirements to claim tax credits. This situation has allowed taxing credit companies to charge huge fees from employers to prepare documentation.

These companies exaggerate the employer’s edge in claiming tax credits. As a result, many employers fall prey to such claims, leaving the documentation process to tax credit companies. However, they find themselves on a dead end when the authorities deny ERTC claims. Tax credit companies keep the employer in an infinite loop of worries by offering lacking advice.

To overcome such problems, employers must take time to understand the IRS guidelines that sufficiently address essential concerns. Having a clear understanding of the documentation process saves employers from paying hefty fees to tax credit firms that may only lead to ERTC claim denials.

Understanding the terms and conditions before claiming tax credits can help determine the risk you can bear. For instance, if you provide lacking evidence about your company size, it may collide with the IRS guidelines about employer size. Moreover, lacking evidence of qualified wages for full-time employees may lead to denied claims when seeking ERTC.

While seeking assistance from tax credit firms may come in handy while preparing your qualification records, lacking 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 ERTC 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 a pit of disapproved credits. 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.

tax credit firms

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 facing 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 a Specialized ERTC CPA Firm

If you wonder how to save yourself from ERTC disapproval, specialized ERTC CPA firms can be influential. These firms hold a distinguished status in the competitive market while offering advice to employers. They entirely focus on tax credit management for employee retention and possess appropriate knowledge to document fool-proof evidence.

Seeking assistance from ERTC CPA firms can keep you ahead of IRS audits. Firstly, the CPAs in these firms pay close attention to the documentation process. They go the extra mile to incorporate every detail IRS may inquire about from the employer.

Apart from documentation, you can also seek additional assistance in clearing the audit process. ERTC Express is a specialized ERTC CPA firm with a credible reputation in the competitive market.

You can seek free ERTC calculation services for your company by filling out a form in a few seconds. 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, feel free to contact one of the CPA experts at ERTC Express today.

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