The IRS recently sent out 20,000 audit letters about the Employee Retention Tax Credit (ERTC). This is a big step to make sure that this pandemic-era relief measure is still valid.
This article aims to provide a comprehensive overview of the ERTC audit notices and practical guidance for businesses on how to effectively navigate this situation.
How To Read The ERTC Audit Notices
The ERTC is an important part of the CARES Act because it provided much needed cash to businesses that kept their workers during the COVID-19 pandemic.
However, the IRS has found errors and in some instances fraud with these ERTC claims. These 20,000 audit notices are a big step toward making sure that only businesses that are qualified benefit and correct any errors or abuses in the system.
Responding To An Audit Notice
If you find yourself in receipt of an audit notice, it’s crucial to handle it timely and with care. The first step would be to acknowledge the proposed changes.
The IRS letter outlines proposed changes based on their findings. An example would be, the ERTC claim exceed the credit amount allowed in the given quarter.
Actions To Take If You Agree
- Confirm your agreement with a signed statement, and provide payment for the proposed amount.
- Use the Electronic Federal Tax Payment System (EFTPS) for payment.
- If you’re unable to pay the full amount, consider setting up an installment agreement with the IRS.
What To Do If You Disagree
- Have your CPA draft a detailed, signed statement explaining the disagreement, supported by relevant facts.
- Attach the original IRS notice to the response letter.
- Send the response via certified mail to ensure tracking and confirmation of receipt.
Consequences Of Non-Response By The Deadline
- ERTC credits may be disallowed or reduced as per the IRS’s Summary of Proposed Adjustment.
- You will incur an increased tax liability, inclusive of any applicable penalties and interest.
- Expect to receive a balance-due notice from the IRS for the owed amount.
This wave of audit letters is a good reminder of how important it is to do your taxes correctly and in line with the law. Businesses should carefully look over their ERTC cases, keep good records, and get help from ethical and competent tax professionals.