ERC Tax Audit Attorney

ERC (Employee Retention Credit) Tax Audit Defense refers to the tax lawyer’s strategies and processes to defend California business owners who made claims for the Employee Retention Credit (ERC) during an audit by the Internal Revenue Service (IRS). Overview of Tax Audit Attorney’s strategy for Employee Retention Credit – ERC tax audit by the IRS:

• Understanding ERC: The Employee Retention Credit was introduced as part of the CARES Act to help businesses retain employees during the economic downturn caused by the COVID-19 pandemic. It allows eligible employers to claim a refundable tax credit against certain employment taxes.

• Audit Triggers: The IRS might audit ERC claims due to discrepancies, potential fraud, or simply as part of routine checks. Common triggers include claiming the ERC when ineligible, double-dipping with other relief like PPP loans, or inconsistencies in documentation. This is the most common basis to trigger ERC tax audits.

• IRS Tax Audit Defense Strategies for ERC Audits:
  • Documentation: The cornerstone of any tax audit defense is proper documentation. Businesses should keep records of payroll, employee hours, revenue drops, government mandates affecting operations, and any other evidence supporting their ERC eligibility. Prior PPP loan applications and the actual amounts received through PPP program can be basis for possible IRS tax audit defense.
  • Engaging a Tax Attorney for ERC Tax Audit: If there is a possibility of receiving improper ERC funds or tax credits, engaging a tax lawyer prior to any IRS Tax Audit notices can be critical. IRS Tax Lawyer can limit fraud or criminal tax exposure and help navigate the complexities of tax law, prepare for the ERC audit, and represent the business during the process.
  • Understanding Eligibility: A clear understanding of what qualifies for ERC is essential. Businesses should ensure they meet the criteria regarding revenue reduction or full or partial suspension of operations due to governmental orders.
  • IRS ERC Audit Preparation: This includes organizing all relevant documents, understanding the IRS’s audit process, and preparing for potential questions or challenges regarding the ERC claim.
  • ERC Tax Legal Arguments: Since 2023 there have been various amnesty and potential forgiveness programs that have been initiated by the IRS to de-criminalize or waive potential tax fraud exposure to business owners. Because there have been different covid mandates in various counties in California, business owners in Los Angeles, San Francisco, Orange County or Oakland will have different tax legal arguments concerning their ERC tax defense. There have been monthly new court decisions or IRS guidance on ERC tax audits which may affect the outcome of any ERC case.
  • Communication with IRS: Maintaining professional and open communication with the IRS during the audit can sometimes lead to a smoother process. This includes timely responses to inquiries and providing all requested documentation.
  • Withdrawal or Repayment Programs: If there’s doubt about the legitimacy of the ERC claim, some businesses may consider amnesty option set by IRS allowing withdrawal of claims or setting up repayment plans, especially if they’ve received funds they might not be entitled to.

• Recent Developments: There’s been increased scrutiny on ERC claims due to widespread misuse. The IRS has paused processing new claims and is focusing on tax audits, indicating a tougher stance on ensuring compliance. IRS has initiated a comprehensive criminal investigations into Employee Retention Credit ERC promoters who received fees or percentage of the ERC fund distribution.

• IRS Policy Sentiment: From posts on platforms like X, there’s a mix of frustration with the IRS tax audit process, including concerns over weaponization of IRS tax audits, and incorrect advice on a business owners responsibility to trace financial discrepancies. In addition, there has been recent push to withdraw criminal investigations on ERC audits and focus on civil tax assessments and tax penalties.

In summary, ERC tax audit defense involves a combination of thorough preparation, tax legal understanding, professional assistance, and sometimes, strategic withdrawal or settlement with the IRS. Given the evolving nature of tax laws and IRS guidelines, staying updated and proactive is key for any business facing or preparing for an ERC audit.