The Employee Retention Credit (ERC) provides a refundable tax credit to businesses that kept employees on payroll during the pandemic. For most businesses, this credit has translated into substantial refunds. However, with the surge of misinformation and fraudulent claims, the IRS has intensified its review process to protect against improper filings.
Given this heightened scrutiny and the substantial funds associated with it, preparing your documentation thoroughly is crucial to navigating a potential ERC audit confidently.
What Do You Need for an ERC Audit?
An ERC audit is likely to be more comprehensive than a typical tax audit, with the IRS requesting documentation to verify your eligibility, calculations, and compliance.
Here are six critical documents to have on hand:
- Official Government Orders Affecting Operations: Any government-issued orders that led to the shutdown or suspension of your business operations. These might include state or local mandates that forced partial or complete closures.
- Proof of Operational Impact Due to Government Orders: Be prepared to show that these orders directly impacted a substantial portion of your operations. This could be in the form of internal communications, adjusted schedules, or other documentation demonstrating how your business was affected.
- Records of Significant Decline in Gross Receipts: Gather financial statements or revenue records showing the periods where your gross receipts dropped significantly. These will support your eligibility if the ERC was claimed based on revenue decline.
- Employee Work and Payroll Records: Payroll records are essential, as they validate the wages paid to employees during the eligible periods.
- Health Plan Expenses Documentation: Collect documentation that outlines any health plan expenses you allocated as part of your ERC claim, such as monthly benefits statements or payroll summaries.
- Federal Employment Tax Returns: Be ready to provide copies of federal employment tax returns, including Forms 941, 941-X, and W-2s, as these are crucial in confirming the calculations behind your ERC claim.
Important Details to Remember
As with other types of IRS audits, ERC audits will begin with an official notice by mail. This letter will specify the years or quarters under review and outline the response timeline. Always be cautious of scammers; the IRS will not initiate audits over the phone or request sensitive information through unsolicited calls.
Concerned About an ERC Audit? Let Us Help
If your business claimed the ERC and you’re concerned about an audit, now is the time to make sure you’re prepared. At Save My ERC, our team of licensed financial experts can guide you through an ERC-related audit with confidence. Schedule a meeting with us today to get the audit support and expert guidance you need.