What is the cost of hiring an ERC Audit Representative?

The True Cost of Hiring an ERC Audit Representative

The IRS is Cracking Down on Employee Retention Credits

So, you claimed the Employee Retention Credit (ERC) on your business’s payroll tax returns – and now, you’re facing an audit from the IRS. Take a deep breath, this is a situation no business owner wants to find themselves in, but it’s happening more and more as the IRS intensifies its scrutiny of ERC claims. You see, the ERC was a lifeline for many businesses struggling through COVID-19 shutdowns and disruptions. But, as with any government relief program, there were companies that took advantage – claiming credits they didn’t qualify for. And now, the IRS is on the hunt, auditing ERC claims left and right to claw back any improperly paid funds.

The Stakes are High

Make no mistake, an ERC audit is not something to take lightly. If the IRS determines you weren’t eligible for all or part of the credit you claimed, you could be on the hook for:

• Repaying the entire credit amount, plus interest
• Hefty penalties and fines, potentially 20% or more of the disallowed credit
• Amending multiple years of income tax returns
• Defending your position through a lengthy appeals process

And, let’s be real – dealing with the IRS is never a walk in the park. Their auditors are trained specialists, armed with volumes of guidance on the complex ERC rules. They know exactly what they’re looking for, and exactly how to poke holes in your claim. So, what do you do, if you get hit – with one of these things? Hire an experienced ERC audit representative to fight this battle for you.

When to Bring in the Big Guns

There are some situations where professional representation is absolutely essential:

• Your claim was prepared by an “ERC Mill”: Many of these sketchy operations took aggressive positions to maximize credits. If they did your claim, it’s likely getting audited.
• Your documentation is incomplete or missing: The IRS will want to see proof you were truly eligible – government orders, financial records, the whole nine yards. Missing docs are a red flag.
• Your claim is large or complex: Claims over $1 million are automatic audit targets. But even smaller, more nuanced situations require an expert’s touch.
• You lack the time or expertise: Let’s face it, most business owners don’t have the bandwidth or specialized knowledge to properly defend an ERC audit. Your focus should be on running your company.
• You want to protect your rights: The IRS has deep pockets and unlimited resources. Having a bulldog in your corner levels the playing field and ensures you’re treated fairly.

Even if your situation doesn’t check all those boxes, it never hurts to have a professional ERC audit rep look things over. They can assess your risk, shore up any weaknesses, and give you an honest opinion on your odds of success.

What an ERC Audit Rep Costs

The truth is, there’s no one-size-fits-all number. ERC audit rep fees can vary significantly based on:

• The size and complexity of your claim
• The scope of services required (e.g. correspondence audit vs. field audit)
• The rep’s experience level and location
• Whether the case goes all the way to U.S. Tax Court

But, to give you a general idea, here are some typical fee ranges:

• Correspondence Audit: $2,500 – $7,500
• Office/Desk Audit: $5,000 – $15,000
• Field Audit: $10,000 – $25,000
• IRS Appeals: $5,000 – $15,000
• U.S. Tax Court: $15,000 – $35,000+

Now, those are just ballpark estimates – every case is unique. But, they illustrate an important point: hiring an ERC audit rep is a major investment, one that could easily run into the tens of thousands of dollars for a complex claim. The good news? That investment could be well worth it if the rep is able to preserve most or all of your ERC claim. After all, we’re often talking about six-figure credit amounts on the line. In that context, a $15,000 or $20,000 fee to protect $100,000+ in cash flow is a bargain.

What You’re Paying For

In short, you’re paying for:

• Specialized knowledge and experience: These pros live and breathe the ERC rules. They know every nook, cranny, and IRS audit tactic like the back of their hand.
• A focused, strategic defense: Your rep will build a comprehensive, airtight case tailored to your specific situation – not just throw spaghetti at the wall and hope something sticks.
• Meticulous documentation and presentation: Believe it or not, how you package and present your evidence can be just as important as the evidence itself in an IRS audit. Your rep knows exactly what to highlight and how.
• Zealous advocacy in your corner: When the IRS pushes back (and they will), your rep will be there to forcefully make your case and protect your rights as a taxpayer.
• Insider familiarity with IRS processes: Former IRS employees often make the best ERC audit reps. They know the agency’s playbook inside and out.
• Handling all the grunt work: Let’s be honest, prepping for an IRS audit is a soul-crushing time-suck. Your rep takes that burden off your plate so you can stay focused on your business.
• Ongoing guidance and advice: Even after the audit, your rep can counsel you on any required next steps, like amending returns or pursuing appeals.

At the end of the day, you’re paying for expertise, experience, and a comprehensive support system to navigate this legal minefield. Is it costly? You bet. But, it could be what saves your ERC claim – and your bottom line – when the IRS comes knocking.

Evaluating Your Options

So, you know an ERC audit rep is going to cost you – but how do you find the right one and get a fair price? Here are some tips:

Get Referrals and Research Credentials

Don’t just hire the first name that pops up on Google. Ask around for referrals from other business owners, your CPA, or industry contacts. Check prospective reps’ credentials – are they Certified Public Accountants (CPAs), Enrolled Agents (EAs), or tax attorneys? How much direct ERC audit experience do they have? You’ll also want to read reviews and check for any disciplinary actions or complaints. This is too important to just go with whoever has the slickest website.

Compare Pricing Models

Some ERC audit reps charge hourly rates, while others work on a flat project fee or hybrid model. There are pros and cons to each, so get a clear cost estimate upfront and understand exactly what’s included. Hourly fees may seem lower initially, but they can skyrocket if a case drags on. Flat fees provide more certainty, but make sure you’re only paying for the services you’ll actually need. Don’t get upsold on extras you don’t want or require.

Scrutinize the Fine Print

Speaking of extras, read every contract carefully before signing. What happens if the rep can’t resolve things at the audit stage – do they charge more for appeals representation? Are there any provisions for fee refunds or reductions if the outcome is unfavorable? You’ll also want to clarify who will be doing the actual work. Is it the rep you met with, or will it be delegated to less experienced associates? There’s nothing wrong with a team-based approach, but you should know what you’re paying for.

Trust Your Gut

At the end of the day, you need to be confident in your ERC audit rep’s abilities. Do they seem to thoroughly understand your situation and concerns? Are they responsive and transparent when you ask questions? Or are they just giving you a sales pitch? An ERC audit is way too important to hire someone you don’t fully trust and feel comfortable with. 

Reducing the Overall Cost

Get an Upfront Risk Assessment

Many ERC audit reps offer a flat-fee risk assessment or case evaluation before you officially hire them. For a few hundred bucks, they’ll review your claim, documentation, and overall fact pattern.If the rep determines you have a strong case that’s likely to prevail at audit, great – you can feel confident moving forward with full-blown representation. But if they identify major red flags or holes in your claim, you may decide to cut your losses early before racking up massive fees.

Leverage Your CPA’s Knowledge

Assuming your CPA or tax pro was at least somewhat involved in your original ERC claim, lean on their existing knowledge of your situation. They may be able to assist your audit rep with documentation or background info, potentially reducing billable hours.Just make sure your CPA is truly well-versed in the ERC rules and IRS audit procedures. You don’t want to pay them to get up to speed if they’re in over their head.

Consider a Hybrid Approach

For relatively straightforward cases, you may be able to pursue a hybrid approach – handling some aspects yourself while relying on your ERC audit rep for key tasks only.For example, you could gather and organize all the requested documentation in-house. Then, have your rep review everything, pinpoint potential pitfalls, and take the lead on correspondence and representation before the IRS.This path does require you to have some base-level tax knowledge and bandwidth. But if you can handle the grunt work, it could cut down on overall professional fees.

Negotiate a Contingency Fee

In some cases, particularly for very large or complex claims, an ERC audit rep may be open to a contingency fee arrangement. Instead of charging hourly rates or a flat fee, they’ll take a percentage (often 30% or more) of any ERC amount they’re able to preserve for you.While that percentage may sound steep, a contingency fee could make sense if you’re dealing with a seven-figure ERC claim that’s at serious risk. If the rep is able to recover most of that claim value, their contingency fee could still be lower than upfront hourly charges. Just be aware that contingency fee arrangements can sometimes create misaligned incentives. Your rep may be more motivated to pursue an aggressive, risky strategy to maximize their payout. Make sure you’re on the same page about priorities and risk tolerance.

Seek Fee-Shifting if You Prevail

In some cases, if you are able to successfully defend your ERC claim at the U.S. Tax Court level, you may be able to pursue fee-shifting. This would allow you to be reimbursed by the IRS for some or all of your reasonable administrative and litigation costs, including legal fees. However, fee-shifting claims are an uphill battle. You’ll need to prove the IRS position was not “substantially justified,” which is a high bar. At the end of the day, the costs of hiring an ERC audit rep can be daunting. But, they’re an investment in protecting what could be a make-or-break cash flow boost for your business. By being a smart shopper and exploring cost-saving strategies, you can find the right balance of quality and affordability.

The Spodek Law Group: ERC Audit Experts in Your Corner

If you find yourself facing an ERC audit from the IRS, know that you don’t have to go it alone. The tax controversy professionals at the Spodek Law Group have extensive experience guiding businesses through these high-stakes battles. Our team includes former IRS attorneys, Enrolled Agents, and CPAs who have seen it all when it comes to ERC audits and employee benefit plan controversies. We know the tactics the IRS will use, the documentation they’ll demand, and the arguments that resonate. Simply put, we speak the IRS’s language.But what really sets us apart is our unwavering commitment to client service. We take a hands-on, proactive approach to every case – diving deep into the details, developing a customized strategy, and zealously advocating for your rights and best interests.

An ERC audit can be intimidating, no doubt. But with the Spodek Law Group in your corner, you don’t have to face the IRS alone. We’ll be by your side every step of the way, providing the expertise, experience, and tenacious representation you need to protect your business.C urious about our specific services and how we can help with your ERC audit situation?

Reach out today for a free, no-obligation consultation. We’ll take the time to understand your unique circumstances, and provide an honest, transparent assessment of your options and costs moving forward. There’s no sugar-coating it – hiring professional representation for an ERC audit is a major investment. But, it’s an investment in protecting your business, your bottom line, and your peace of mind.

With so much at stake, can you really afford not to have the Spodek Law Group on your side? The choice is yours. But we’ll be here if you need us, ready to fight tooth and nail to keep what’s rightfully yours. After all, that’s what being an elite criminal defense firm is all about.