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ERC Audit FAQs

ERC Audit FAQs

 

What is the statute of limitations for ERC audits?

The IRS recently extended the statute of limitations from three years to five years for all tax amendments regarding ERC. This extension of the ERC audit period allows the IRS another two years to conduct ERC audits on businesses that, among others, may lack substantial documented evidence of their eligibility.

 

Does claiming the ERC increase my audit risk?

Claiming the Employee Retention Credit does not directly increase your business’ risk of being audited. As long as your ERC claim is calculated correctly and includes substantial evidence of your business’s eligibility, the IRS should have no reason to believe an audit is necessary. Omega can identify any potential holes in your ERC claim and ensure your calculations are correct.

 

What is the penalty for ERC fraud?

Miscalculated or improperly claimed ERC credits can be met with failure to deposit penalties and interest due on the late return of 20% to 40% of the underpaid tax, and up to 75% if the fraud was committed knowingly. Business owners are always responsible for the information reported on their tax returns — even if they used an outside tax preparer or tax credit specialist to claim ERC.

 

How Long is the IRS’ ERC Audit process

A full ERC audit may take three to six months or more to conclude. What’s more, the IRS will not reimburse you for time lost or legal representation, regardless of the outcome. It is considered your fiscal responsibility to always be prepared for an ERC audit.

 

Can a business dispute the outcome of an ERC audit?

Yes, if you disagree with your ERC auditor’s determination, you may file a written protest for an Appeals conference or hearing with the IRS’s Independent Office of Appeals.

 

What happens if my business fails an ERC audit?

If the IRS determines there are discrepancies in your ERC claim, they might adjust your tax liability, which could result in additional taxes, penalties, and interest.

 

Do ERC processing firms offer audit protection?

Yes, a select number of the best ERC processing companies offer ERC Audit Protection with their services. However, you should confirm that your ERC preparer’s coverage is more than basic assistance with IRS communications and documentation. ERC Audit Protection should be interpreted to mean your preparer will (1) defend their position, (2) reimburse their service fee(s) and cover the cost of any penalties assessed if your refund is disallowed, and (3) be operating until the statute of limitations expires.

 

Can ERC claims be audited?

The short answer is yes. Whether or not your ERC claim will be audited, however, depends on several factors, including the eligibility criteria applied, the accuracy of your qualified wage calculations, the size of your refund, and the credibility of your preparer. You may also be selected at random for an ERC audit.

 

What if my CPA does not believe my business is eligible for the ERC program

If your business was negatively impacted by the COVID-19 pandemic, but your CPA believes you’re ineligible — we still encourage you to apply.

It is not uncommon for CPAs, accounting agencies, or even Chief Financial Officers (CFOs) to get it wrong. The Employee Retention Credit (ERC) is a complex program and the IRS has released a number of warnings.

Legacy Tax & Resolution Services will not submit claims for businesses that are ineligible. We take the time necessary to conduct our due diligence, present our assessment, and let our clients decide whether or not to proceed.

 

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