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Surviving an ERC Field Audit On-Site

Surviving an ERC Field Audit On-Site: A No-Nonsense Guide

The Dreaded Knock on the Door

You knew this day could come, but that doesn’t make it any easier – the IRS is at your door, ready to conduct a field audit of your Employee Retention Credit (ERC) claim. Take a deep breath, this isn’t the end of the world, but you need to be prepared. A field audit is the most intense form of ERC examination, with IRS agents physically visiting your place of business to scrutinize operations, records, and documentation. It’s an invasive process, no doubt, but one you can navigate successfully with the right approach.

Know Your Enemy: Understanding the IRS Auditor’s Mindset

The auditor isn’t your friend, nor are they out to get you – they simply want to verify you qualified for the ERC funds you claimed. Their job? Ensure businesses didn’t take advantage of the system and that tax dollars were properly allocated.So, what’s going through their head? A few key things:

  1. Substantiation: They need to see proof you met all eligibility requirements for the credit amount claimed. No assumptions, just cold hard facts.
  2. Compliance: Did you follow the complex ERC rules and calculations to the letter? Any missteps could mean repayment.
  3. Red Flags: Auditors are trained to spot suspicious activity like overclaiming wages or using the same funds for PPP loan forgiveness.

Keep this mindset in mind, it’ll help you prepare the documentation and information they’re seeking.

Prep Like a Mastermind: Gathering Your Ammo

Think of this as the final exam for your ERC claim – you need to gather every shred of evidence proving your eligibility. Start with the basics:

  • Financial Records: Profit/loss statements, tax returns, books of account for 2019-2021. They’ll scrutinize any decline in gross receipts.
  • Payroll Data: Quarterly returns, W-2s, wage listings – anything showing qualified wages paid per employee.
  • Employee Details: Hire/termination dates, duties, locations, schedules. They’ll check which staff qualified.
  • Operational Impact: This is huge. You need bulletproof documentation of how COVID-19 orders forced partial or full suspension of your operations.

But don’t stop there, get granular:

  • PPP loan applications and forgiveness calculations to avoid double-dipping
  • Ownership structures and any related entities for affiliation rules
  • Calculations breaking down the ERC amount per quarter and per employee

The auditor will ask for it all, so compile it beforehand – don’t give them a reason to doubt your preparedness.

The Audit Itself: Staying Frosty

When audit day arrives, it’s showtime. IRS agents will descend on your premises, let’s ensure they leave satisfied:

Christine Twomey
Christine Twomey
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Brendan huisman
Brendan huisman
Alex Zhik contacted me almost immediately when I reached out to Spodek for a consultation and was able to effectively communicate the path forward/consequences of my legal issue. I immediately agreed to hire Alex for his services and did not regret my choice. He was able to cover my case in court (with 1 day notice) and not only was he able to push my case down, he carefully negotiated a dismissal of the charge altogether. I highly recommend Spodek, and more specifically, Alex Zhik for all of your legal issues. Thanks guys!
Guerline Menard
Guerline Menard
Thanks again Spodek law firm, particularly Esq Claire Banks who stood right there with us up to the finish line. Attached photos taken right outside of the court building and the smile on our faces represented victory, a breath of fresh air and satisfaction. We are very happy that this is over and we can move on with our lives. Thanks Spodek law 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️
Keisha Parris
Keisha Parris
Believe every single review here about Alex Z!! From our initial consultation, it was evident that Alex possessed a profound understanding of criminal law and a fierce dedication to his clients rights. Throughout the entirety of my case, Alex exhibited unparalleled professionalism and unwavering commitment. What sets Alex apart is not only his legal expertise but also his genuine compassion for his clients. He took the time to thoroughly explain my case, alleviating any concerns I had along the way. His exact words were “I’m not worried about it”. His unwavering support and guidance were invaluable throughout the entire process. I am immensely grateful for Alex's exceptional legal representation and wholeheartedly recommend his services to anyone in need of a skilled criminal defense attorney. Alex Z is not just a lawyer; he is a beacon of hope for those navigating the complexities of the legal system. If you find yourself in need of a dedicated and competent legal advocate, look no further than Alex Z.
Taïko Beauty
Taïko Beauty
I don’t know where to start, I can write a novel about this firm, but one thing I will say is that having my best interest was their main priority since the beginning of my case which was back in Winter 2019. Miss Claire Banks, one of the best Attorneys in the firm represented me very well and was very professional, respectful, and truthful. Not once did she leave me in the dark, in fact she presented all options and routes that could possibly be considered for my case and she reinsured me that no matter what I decided to do, her and the team will have my back and that’s exactly what happened. Not only will I be liberated from this case, also, I will enjoy my freedom and continue to be a mother to my first born son and will have no restrictions with accomplishing my goals in life. Now that’s what I call victory!! I thank the Lord, My mother, Claire, and the Spodek team for standing by me and fighting with me. Words can’t describe how grateful I am to have the opportunity to work with this team. I’m very satisfied, very pleased with their performance, their hard work, and their diligence. Thank you team!
Anthony Williams
Anthony Williams
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Loveth Okpedo
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Bee L
Bee L
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divesh patel
I can't recommend Alex Zhik and Spodek Law Firm highly enough for their exceptional legal representation and personal mentorship. From the moment I engaged their services in October 2022, Alex took the time to understand my case thoroughly and provided guidance every step of the way. Alex's dedication to my case went above and beyond my expectations. His expertise, attention to detail, and commitment to achieving the best possible outcome were evident throughout the entire process. He took the time to mentor me, ensuring I understood the legal complexities involved to make informed decisions. Alex is the kind of guy you would want to have a beer with and has made a meaningful impact on me. I also want to acknowledge Todd Spodek, the leader of the firm, who played a crucial role in my case. His leadership and support bolstered the efforts of Alex, and his involvement highlighted the firm's commitment to excellence. Thanks to Alex Zhik and Todd Spodek, I achieved the outcome I desired, and I am incredibly grateful for their professionalism, expertise, and genuine care. If you're in need of legal representation, look no further than this outstanding team.

Designate a Point Person
Choose one representative to lead the audit, whether it’s you or an advisor. Having multiple voices creates confusion.

Set the Tone
Be courteous yet firm. You want to create an air of professionalism while protecting your rights.

Prepare Your Team
Ensure any employees the auditor needs to interview understand the process and requirements. A wrong word could jeopardize your case.

Provide Access, Not A Guided Tour
Give auditors the space and documentation access they need, but don’t volunteer anything beyond what’s requested.

Ask Clarifying Questions
If any requests are unclear, get them clarified. You don’t want to provide inadequate information.

Keep Meticulous Records
Document every request, every piece of information provided, every discussion had. You’ll need this paper trail.

Stay Vigilant
Audits can uncover other areas of non-compliance. If the auditor expands scope, respond accordingly while protecting your rights. The key? Blend cooperation with protecting your interests. You want to create a spirit of transparency while not accidentally admitting fault.

When the Auditor Isn’t Satisfied: Strategies for Disagreements

Even with perfect preparation, the auditor may disagree with your eligibility or ERC calculations. If this happens, don’t panic:

Remain Calm, But Make Your Case
Provide a clear, fact-based counterargument citing your documentation and the applicable ERC guidance. Don’t get emotional.

Request an Exit Interview
Use this meeting to summarize your position and understand the auditor’s stance. Identify any remaining disagreements.

Explore Further Substantiation Options
If the auditor wants more proof, pursue it. Provide supplementary documentation or third-party analysis if needed.

Consider Appealing
If you still can’t reach agreement, you have the right to appeal auditor’s determinations through IRS channels.

Seek Professional Assistance
ERC audits are high-stakes – to protect your claim, enlist a tax professional experienced in audit defense and negotiations.The audit isn’t over until you say it’s over. As long as you have a legitimate stance, press your case through all available means.

When You Lose: Cutting Your Losses Properly

In the worst-case scenario where your ERC claim is denied after all appeals, you must respond properly to mitigate further damage:

Repay Any Disallowed Amounts Promptly
The longer you delay, the more penalties and interest accrue. Repay immediately to limit additional costs.

Amend Any Impacted Tax Returns
If repaying ERC amounts, you’ll need to amend returns to reallocate wage deductions and report those amounts as income.

Implement Any Remedial Actions
If compliance issues were identified, implement procedures and controls to address them for the future.

Request Penalty Relief If Applicable
If the disallowance wasn’t due to willful neglect, you may qualify for penalty abatement – be sure to claim it.

Learn From the Experience
Identify any gaps or shortcomings that led to the disallowed claim and apply those lessons to improve tax processes. It’s an expensive lesson, but one that can ultimately strengthen your tax operations if you approach it proactively.

The Light at the End of the Tunnel: When It’s All Over

Whether your ERC claim survived or not, there’s an end to this stressful process. Once the auditor’s work is complete:

Obtain Written Closure
Request documentation confirming the audit’s conclusion and final outcome. This provides certainty moving forward.

Debrief the Experience
Discuss with your team what went well and what didn’t. Identify areas to improve audit readiness.

Implement Process Improvements
Based on that debrief, create procedures and controls to substantiate future credit claims more robustly.

Celebrate Your Hard Work
It’s been a long road, take a moment to appreciate your team’s dedication in protecting the organization’s interests.

Refocus on Growing the Business
With the audit resolved, turn your attention back to more productive matters that drive success.The audit may have been invasive, but emerging on the other side smarter and stronger makes it all worthwhile.

The Spodek Law Group Advantage: Tenacious ERC Audit Defense

Even doing everything right, ERC audits are immensely challenging to navigate alone. Having a tenacious legal advocate in your corner provides a considerable advantage. At Spodek Law Group, our tax litigation team lives for intricate cases like these. We combine:

  • Deep knowledge of ERC legislation and evolving IRS guidance
  • Extensive experience managing audits and IRS negotiations
  • A laser focus on substantiating your claim through meticulous documentation
  • Aggressive defense of your rights as a taxpayer
  • A reputation for taking hard stances and not backing down

In short, we fight tooth-and-nail to protect what you’ve legitimately earned while seeking reasonable resolutions.When an auditor arrives, you want lawyers who will stand up and make them work for every disallowed dollar. That’s Spodek Law Group.We’re not just litigators either – our tax team can remediate issues, amend returns, and implement processes to safeguard future credits. It’s a full-service solution tailored to your unique situation.

There’s no way around it, ERC field audits are grueling affairs requiring immense preparation and professional guidance. But don’t view them as inevitable losses either. By understanding the auditor’s motivations, gathering comprehensive documentation, and standing firm in your defensible position, you can absolutely survive this examination. It just takes the right mindset and unwavering advocacy.

So, when that knock comes, keep calm and get the Spodek Law Group team in your corner immediately. We’ll ensure you fight this battle from a position of strength.Because in the highest stakes situations, you need elite representation to protect everything you’ve built. After all, it’s not just about an ERC credit – it’s about defending your legacy.

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