CPAs of Choice

What is an ERC Audit?

An ERC audit is a formal review conducted by the Internal Revenue Service (IRS) to ensure businesses have accurately claimed the ERC. The IRS may select businesses for audit based on various criteria, such as potential discrepancies or higher-risk factors. Understanding the audit process is crucial to be adequately prepared.

What Triggers an Employee Retention Credit Audit?

Several factors may trigger an Employee Retention Credit audit, including:

• Discrepancies in claimed ERC amounts compared to industry averages.
• Suspiciously high credit claims that warrant further investigation.
• Errors in documentation provided during the ERC claim process.

Businesses that claim the ERC need to be prepared for potential audits, and proactive measures can significantly reduce the likelihood of being audited.

To ensure a smooth Employee Retention Credit audit experience, businesses must be proactive in their preparations. Here are some essential steps to take:

1. Maintain Accurate Records: Keep detailed records of all ERC-related transactions, including employee information, wages, and qualified expenses.
2. Compliance Check: Conduct an internal compliance check to identify any potential issues or errors in your ERC calculations and claims.
3. Seek Professional Guidance: Engage a qualified tax professional or ERC specialist to review your documentation and calculations for accuracy.
4. Documentation Organization: Organize all supporting documents in a systematic manner, making it easier for auditors to review.
5. Employee Eligibility Verification: Confirm that your employees meet the eligibility criteria for ERC.
6. Stay Informed: Keep up-to-date with Employee Retention Credit guidelines and regulations to ensure compliance with any changes.

By implementing these preparatory measures, businesses can significantly reduce the likelihood of facing penalties during an Employee Retention Credit audit.

When selected for an ERC audit, businesses should be aware of what to expect during the process. The IRS will initiate the audit by sending a notification letter detailing the issues they plan to examine. Typically, auditors will request various documents, including payroll records, financial statements, tax returns, and Employee Retention Credit calculations.

During the audit, businesses will have the opportunity to provide explanations and additional documentation to support their ERC claims. It is essential to remain cooperative and transparent throughout the audit, addressing any queries or concerns raised by the auditors.

The audit duration may vary depending on the complexity of the case, but businesses should be prepared for the possibility of a prolonged review process. Once the audit is complete, the IRS will issue a written report with their findings, which could result in either an approval of the ERC claim or a notice of adjustments or penalties.