Employee Retention Credit IRS Audit Update

Charlie Metzig

The CARES act was signed into law March 27, 2020 which gave us the Employee Retention Credit (ERC).  This refundable tax credit was intended to help those affected by COVID restrictions or disruptions.  Unfortunately it has been abused by many organizations and more importantly service providers.  The IRS is stepping up enforcement efforts suspecting many claims to be fraudulent.  The following are notes from our conversations with other professionals, IRS audits and other helpful information.

  1. ERC was scored at the Congressional Budget Office for $90 billion.  $350 billion has been paid out to date with 1 million unprocessed claims waiting at the IRS.
  2. The IRS is currently using an Artificial Intelligence audit algorithm developed to fight crypto currency fraud for ERC claims.  The first round found 30% fraud rate.
  3. IRS has 5 years from the claim being paid to or amended return to audit.
  4. Red flags for the IRS are Q3 2021 eligibility (almost all government orders had expired by then) or eligibility for all quarters.
  5. The IRS is leery of any service provider with ERC in their name
  6. The IRS has created give back programs for companies to return 80% of the ERC money they are not entitled to without penalty or interest.  This deadline is March 22, 2024.
  7. We are aware of situations where company was not aware ERC was filed on their behalf.

Unfortunately the abusers of ERC have taken away from the benefits ERC provided business that were negatively harmed by COVID.  With the extended statute of limitations and use of AI, we believe the IRS will uncover many of these abuses.  If you have concerns about any ERC eligibility please schedule a call with a Boyum professional to discuss.


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