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HOW TO WIN AN ERC AUDIT
You have just received an Employee Retention Credit, ERC Audit, or Examination letter.
WHAT DO YOU DO????
You can of course call Torchlight or GuardDog Tax for a free consultation. We will be glad to “Talk you off the ledge” as necessary. You can call us at 1-877-758-7797 or email us at info@torchlighttax.com or info@guarddogtax.com.
Or you can take a deep breath and read the IRS letter.
The fact that you have been selected for examination or audit does not mean you are guilty or that the IRS has any evidence. Indeed, in almost all cases, THEY DO NOT KNOW IF YOU QUALIFY FOR THE ERC OR NOT. This is because they do not have the data to judge your qualifications. Indeed, your ERC Application had no place to put in how you qualified!! They never even asked how you qualified!!!!!
This is Dave Horwedel. I am an EA (Enrolled Agent), the highest federal tax credential, and I have two related tax firms—Torchlight Tax and Guard Dog Tax. If you review the websites and YouTube channels for these two sister firms, you will see that:
1) We are a legitimate tax firm with a CPA, EA, and Tax Attorney / support teams.
2) That I have been WARNING taxpayers about the risks of improper ERC filings.
3) That I have hundreds of videos and blogs that explain a lot of tax topics in a way that shows thoughtful consideration and a balanced approach. This includes the ERC.
If you are watching this video and have received an IRS ERC Audit or Examinations letter, you are welcome to call us or email us for a free consultation. While it is recommended you watch this and other videos on my channel, you are welcome to call us right away. This is tough material for some people to watch. If you want to bail and call me for a free consultation, that is fine.
It is important that taxpayers understand that ERC law has not changed since 2021 . NOW the IRS is beating the drum about fraud and encouraging taxpayers to voluntarily pay back their ERC at a discount. The IRS recently used the word “fraud” seven times in a single ERC press release. They are also sending out thousands and thousands of ERC audit or examination letters (same thing) and promoting that they are doing so. They are trying to scare taxpayers with fraudulent claims into withdrawing them.
Well, fair enough. If you have a fraudulent ERC claim, you should withdraw it, pay it back, and take the 20% discount they are offering you. But people are receiving IRS letters whose claims are not fraudulent. The IRS did not require those applying for the ERC (by filing amended payroll tax returns—forms 941X) to report how and by what test they qualified. The IRS simply does not have the data, in almost all cases, to know if you qualified or not. For all ERC tests, you had to have paid W2 employees in the applicable quarters.
In addition, there were three major ways to qualify:
1. As a Recovery Startup Business (which began operations after 15 Feb 2021) or
2. By the “gross receipts” test or
3. By the “full or partial suspension” tests A Recovery Startup Business (which began operations after 15 Feb 2021) is self-explanatory.
The Gross Receipts Test can be a bit confusing, but it is objective. The Complete Shutdown test is also straightforward. The Partial Shutdown test is open to interpretation and likely to be tested in Court. OK. Let’s go back to your IRS letter. Maybe there were errors in calculating your ERC or typographical errors, or not all the payroll records matched your ERC claim. This should be simple enough to handle. Maybe you filed as a Recovery Startup business, and they are querying you about some details. Once again, this should be simple to handle. These are basically calculation errors. Things like numbers in the wrong column or a wrong digit in a Social Security number. These can be handled simply. They may ask you for quarterly breakdowns of your gross receipts. See my video “ERC 2024: The Gross Receipts test.” If you qualified by gross receipts, and this is what they are asking about, supply the data they seek and you are done. The third category is that you were fully or partially suspended. Once again, full suspension is clear cut. You were closed by governmental order! But what is a partial suspension?? This is covered in more detail in my video “ERC 2024: The Partial Suspension test.” In any of these situations, we are glad to help you. You can win your ERC audit, if you qualify, by correctly answering any IRS questions or correcting any calculation errors. If they asked you how you qualified, and you qualified by Gross Receipts, you can send them the data necessary for them to see you qualified by gross receipts.