Will the IRS Audit Your Employee Retention Credit Claims?

Learn about employee retention credit audits from the IRS and how you can protect yourself from them.

Will the IRS Audit Your Employee Retention Credit Claims?

As expected, despite the extended time that has been granted to the IRS to conduct audits of ERC claims, these audits have already begun. We all knew that this day would come, and it has finally arrived. Several companies recently notified us that the IRS is auditing their employee retention credit (ERC) applications. This doesn't mean that these companies have done anything wrong or that they end up owing money to the IRS; it just means that the IRS selected their ERC requests for review.

It is not known if they were randomly chosen for the audit or if they were targeted for some reason. Skilled nursing facilities have tended to avoid the employee retention credit due to its complexity, even though they are likely to meet the eligibility requirements. Ideally, this documentation should be done in tandem with the credit analysis and calculation, but there's still time to go back and make sure that you can back up your credit through an audit, from the IRS or otherwise. KBKG has a team of experts that specializes in helping public accountants and their clients navigate the complexities of all employee retention tax credit rules.

Now is the time for employers to re-examine their employee retention credit applications and proceed cautiously when submitting any new applications. The IRS has expressed its stance that salaries paid to terminated employees or to employees who take “pre-existing vacation, sick leave, or personal leave” should be excluded from qualified wages. The difficulty of this stage of the ERC lies in developing and executing a calculation that accurately captures Medicare salaries by pay period and per employee, and can apply the single qualified salary metric for each pay period and employee throughout the credit period. Among the many and varied COVID relief measures instituted by the federal government, the employee retention credit (the “ERC”) stands out as one of the most important for US employers, as well as one of the most complex. It is essential for employers to be aware of their rights and obligations when it comes to claiming an ERC.

To ensure compliance with IRS regulations, employers should document all calculations related to their ERC claims. This documentation should include payroll records, tax returns, and other relevant documents. Additionally, employers should keep track of any changes made to their ERC claims throughout the year. This will help them prepare for any potential audits from the IRS. The best way to protect yourself from an audit is to make sure you are compliant with all applicable laws and regulations when it comes to claiming an ERC.

It is also important to keep detailed records of all calculations related to your ERC claims. This will help you prepare for any potential audits from the IRS. KBKG's team of experts can help you navigate through all of these complexities and ensure that you are compliant with all applicable laws and regulations.

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