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ERC / IRS Audits

If you received an Employee Retention Credit (ERC) then you may be required to pay it back immediately or you will most likely receive an Audit letter in the near future according to the IRS.

On September 14, 2023, the IRS announced that approximately 90% of the ERC claims were paid to companies that did not qualify for the ERC (See IRS.gov ERC Employee Retention Credit Eligibility Checklist in your handout).

If you received an ERC and your company was not closed by a Government Order due to Covid (like a movie theater, bar, etc.) then you are one of the 90% that must pay back the ERC to the IRS. Non-essential businesses may qualify for a period of ERC, Essential businesses are the 90% that don’t qualify for the ERC!

On December 20, 2023, the IRS issued 20,000 IRS letters disallowing some ERC Claims. These were DISALLOWED not audit notices (See IRS.gov ERC Audits 20,000 claims disallowed).

On December 21, 2023, the IRS announced that those 90% that do not qualify for the ERC can complete an application to remit 80% of the ERC with no penalties. After the March 22, 2024, deadline to complete the application, the IRS has stated that you will receive an Audit letter and must pay back 100% of the ERC plus interest at 8% and penalties of 25% or more. (See IRS.gov ERC Employee Retention Credit Voluntary Disclosure Program).

We have been watching the IRS activity daily since the IRS started the ERC program. There were many changes or clarifications in the past two years. The IRS has stated repeatedly that anyone who wrongfully received an ERC was a victim.

  • The IRS has never stated that they should have audited the ERC claims when received before they issued a refund.
  • The IRS did not define Supply Chain until June 2023; over a year after the program began.
  • The IRS did not monitor who was preparing the ERCs. Were they qualified tax professionals?
  • Most of the ERC recipients did not know that they had to Amend Business Tax Returns for the amount of the ERC. And amend their personal 1040 tax returns.
  • The IRS told CPAs and Tax Attorneys that if they did not prepare the ERC and follow the strict IRS rules, then they should not amend the tax returns because they could be held liable for the errant ERC.

We have copies of several completed IRS ERC Audits from different states and different Tax CPAs and Tax Attorneys. The IRS did not allow the ERC claims. The claims range from $500,000 to $3,000,000. The CPAs and Tax Attorneys were very good at defending the ERC claims, but any essential business was not allowed the ERC claim for many reasons. These ERC claims include a Roofing Company, Transportation Company, Medical Practice, College and many more. I can read a brief description of the IRS report, so you have a better understanding of the IRS position.

Call us at 386-668-3328 if you or your CPA need help understanding and complying with the IRS Rules. Our CPA Firm and the Tax Law Firm we are working with have extensive experience with IRS Audits and the ERC including several ERC audits.