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Will the IRS audit ERC claims?

You took advantage of the Employee Retention Credit (ERC) to help keep your business afloat during the COVID-19 pandemic. Congratulations! But now, the IRS is ramping up audits on ERC claims. Are you ready?The Employee Retention Credit was a lifeline for many businesses struggling through lockdowns, capacity restrictions, and supply chain disruptions. By allowing employers to claim a refundable tax credit for qualified wages paid to employees, the ERC helped companies retain their workforce and avoid layoffs.But as with any tax credit or incentive program, the IRS is keeping a close eye on ERC claims to ensure compliance and prevent abuse. And they’re not messing around – the agency has already announced its plans to aggressively audit businesses that claimed the ERC.

Why is the IRS Auditing ERC Claims?

There are a few key reasons why the IRS has made ERC audits a top priority:

  1. Complexity of the Program: The rules and eligibility criteria for the ERC were complex and changed multiple times throughout the pandemic. This created confusion and opportunities for mistakes or misinterpretation.
  2. Risk of Fraud: Unfortunately, the ERC also attracted bad actors looking to game the system through fraudulent claims. The IRS wants to crack down on this abuse.
  3. High Dollar Amounts: With businesses able to claim up to $26,000 per employee for 2020 and 2021, the potential for large, improper claims is significant.
  4. Third-Party Promoters: Some unscrupulous firms aggressively marketed ERC services, making questionable eligibility claims to boost their fees. The IRS is scrutinizing these arrangements.

As the old saying goes, “The IRS doesn’t like being played for a fool.” With billions of dollars in ERC claims at stake, they’re determined to separate the legitimate claims from the dubious ones.

What to Expect in an ERC Audit

If your business is selected for an ERC audit, the IRS will be looking for proof that you met all the eligibility requirements and calculated the credit correctly. This may include:

  • Payroll Records: Detailed payroll information to verify qualified wages and employee headcounts.
  • Financial Statements: Documentation showing any required decline in gross receipts compared to 2019.
  • Government Orders: Copies of the specific COVID-19 orders that fully or partially suspended your operations.
  • Calculations: A clear breakdown of how you computed the ERC amount for each qualifying period.
  • PPP Loan Details: Information on any Paycheck Protection Program loans received, to ensure no double-dipping.

The IRS auditor will scrutinize every aspect of your claim, so having complete, well-organized records is crucial. They’ll be looking for any discrepancies or red flags that could indicate an improper or inflated claim.Don’t make the mistake of thinking a sloppy or incomplete response will slide by unnoticed. The IRS means business when it comes to ERC audits.

Potential Penalties for Noncompliance

If the IRS determines that your ERC claim was improper or miscalculated, the penalties can be severe:

  • Repayment of Credit: You’ll have to repay the entire ERC amount claimed improperly, plus interest.
  • Accuracy-Related Penalties: A 20% penalty on the underpayment of taxes due to negligence or disregard of rules and regulations.
  • Fraud Penalties: If the IRS finds evidence of intentional fraud, you could face penalties up to 75% of the underpayment.
  • Criminal Charges: In egregious cases of fraud, the IRS may refer the matter for criminal prosecution.

These penalties quickly add up, potentially wiping out any benefit you received from the ERC – and then some. Not to mention the time, stress, and legal fees involved in resolving an adverse audit finding.At Spodek Law Group, we’ve seen firsthand how devastating an unfavorable IRS audit can be for a business. Don’t let an ERC claim come back to haunt you – get professional help to ensure you’re fully compliant.

Christine Twomey
Christine Twomey
Just had my Divorce case settled 2 months ago after having a horrible experience with another firm. I couldn’t be happier with Claire Banks and Elizabeth Garvey with their outstanding professionalism in doing so with Spodek Law Group. Any time I needed questions answered they were always prompt in doing so with all my uncertainties after 30 yrs of marriage.I feel from the bottom of my heart you will NOT be disappointed with either one. Thanks a million.
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 🙏🏼🙏🏼🙏🏼🙏🏼🙌🏼❤️
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Taïko Beauty
Taïko Beauty
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Anthony Williams
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Loveth Okpedo
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Bee L
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divesh patel
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.

How Our Firm Can Help

As experienced federal tax attorneys, we understand the complexities of the Employee Retention Credit and the high stakes involved in an IRS audit. Here’s how we can assist:

  1. ERC Eligibility Review: Our team will thoroughly review your business situation, operations, and financial records to determine if you legitimately qualified for the ERC under the evolving guidance.
  2. Credit Calculation Analysis: We’ll analyze your ERC calculations for each qualifying period, identifying any errors or areas of potential dispute with the IRS.
  3. Documentation Preparation: We’ll work with you to compile a comprehensive, well-organized file with all supporting documentation needed to substantiate your claim.
  4. Audit Representation: If you’re selected for an ERC audit, our experienced litigators will handle all correspondence and meetings with the IRS, aggressively defending your position.
  5. Appeal Support: In the event of an unfavorable audit determination, we’ll guide you through the appeals process and exhaust all available options.
  6. Proactive Planning: For businesses that haven’t yet claimed the ERC, we can evaluate your eligibility and ensure any claim is properly documented from the start.

With our deep knowledge of federal tax law and extensive experience handling IRS audits and litigation, we give you the best chance at a favorable outcome. We understand what the IRS is looking for and how to effectively counter their arguments.Don’t go it alone against the IRS’s ERC audit team. Our attorneys have the skills and tenacity to protect your interests. Call 212-300-5196 now for a confidential consultation.

Real-World Examples: Spodek Law Group Victories

At Spodek Law Group, we’ve helped numerous clients successfully navigate ERC audits and disputes. Here are just a few examples:

  • Manufacturing Company Keeps $1.8M Credit: A metal fabricator claimed the ERC for over 200 employees during the pandemic. The IRS initially denied the entire $1.8 million credit amount after an audit. Our team appealed the decision, compiling extensive documentation of the government orders that impacted their operations. After a lengthy battle, the IRS conceded and allowed the full credit.
  • Restaurant Group Avoids $600K in Penalties: A multi-unit restaurant group was audited for their ERC claims totaling over $2 million. While the IRS accepted most of the credit, they proposed $600,000 in penalties for a portion they deemed improper. Our attorneys negotiated a full concession, allowing the client to keep the entire credit with no penalties assessed.
  • Staffing Firm Survives $4M Dispute: A national staffing company claimed over $4 million in ERC for thousands of employees across multiple states. The IRS auditors took issue with how the credit was calculated for certain worker classifications and locations. We successfully argued for an “industry standards” interpretation, preserving most of the credit for our client.

These examples illustrate the high-stakes, complex nature of ERC audits and disputes. Having a knowledgeable legal team in your corner can mean the difference between a crippling penalty and a full victory.At Spodek Law Group, we’ve been defending clients against federal tax authorities and prosecutors for decades. There’s no ERC audit situation we haven’t encountered before. Put our expertise to work for you.

Take Action Now

The IRS has made it clear – if you claimed the Employee Retention Credit, you’re at risk for an audit. And their auditors won’t go easy on you.Don’t wait until you receive an audit notice to get your records in order. By then, it may already be too late to build an effective defense. Act now to protect your business:

  • Review Your Eligibility: Go back and carefully examine whether your operations and financial situation truly qualified you for the ERC under the complex rules.
  • Double-Check Calculations: Verify that you computed the credit amount correctly for each qualifying period, with no errors or overstatements.
  • Organize Documentation: Compile all payroll records, financial statements, government orders, and other proof supporting your ERC claim.
  • Seek Professional Help: An experienced tax attorney can provide an objective review of your claim and documentation to identify any potential weaknesses or exposure.

If any issues are identified, you may still have an opportunity to correct your filings or make preemptive disclosures to the IRS. This could help mitigate future penalties.The bottom line – don’t simply cross your fingers and hope for the best. The IRS ERC audits are coming. Is your business truly prepared?At Spodek Law Group, we’ve been defending businesses and individuals in high-stakes federal tax disputes for over 50 years. Our attorneys have an unparalleled track record of favorable resolutions, even in seemingly hopeless cases.If you claimed the Employee Retention Credit, don’t risk severe penalties or potential criminal liability due to an improper claim. Contact us today at 212-300-5196 to discuss your situation confidentially. We can review your documentation, assess your audit risk, and develop a proactive strategy to protect your interests.

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