Are You At Risk For An ERTC/ERC Audit?

Last updated on February 18, 2025

The employee retention tax credit (ERTC) is a credit that many employers took in 2020 and 2021. Those credits are normal and provide your company with the funds necessary to survive the upheavals of the pandemic. However, the IRS has recently raised concerns about employers’ intended use of these tax credits and has begun to take action. You don’t have to have done anything wrong to risk an audit.

At Bomar Law Firm, our team of tax attorneys understands the struggles businesses in Atlanta face when it comes to tax time. Across Georgia and the United States, there are massive inconsistencies in how the IRS and the state-level tax authorities enforce the tax codes. This leaves businesses in a bit of a difficult position as time moves forward and audits become more likely.

What Triggers An ERTC/ERC Audit By The IRS?

The IRS initiates ERTC audits based on various criteria when reviewing tax credit claims. A significant revenue decrease during the qualifying period does not automatically protect your business from scrutiny. Some of the reasons include:

• Unclear eligibility documentation: Businesses must provide clear evidence of qualifying under ERTC rules, such as revenue decline or government shutdowns.
• Calculation errors: Mistakes in determining eligible wages or credit amounts can draw the attention of the IRS.
• Overlapping claims: Businesses sometimes improperly claim both ERTC and Paycheck Protection Program (PPP) funds for the same wages without adjustments.
• Incomplete or inconsistent filings: This can include errors in employer identification numbers or mismatched payroll records.

Proper recordkeeping and compliance are critical to avoiding audits. Businesses should, therefore, proactively address these issues to stay within IRS guidelines. However, this is not a straightforward process that you can advocate for yourself without precision and a sound legal strategy.

Our skilled ERC audit defense can help identify potential risk areas in your ERTC claims before they attract IRS attention to help ensure your documentation aligns with regulatory requirements.

How To Prepare For An ERTC Audit

Early preparation significantly improves audit outcomes. But this demands that you build a comprehensive file of all ERTC-related documentation as soon as you file your claim, including the essential elements like:

• Payroll records showing qualified wages and health care costs
• Revenue calculations demonstrating eligibility periods
• Government orders affecting business operations
• Employee time records and work schedules
• Financial statements supporting revenue decline claims
• Documentation of PPP loan usage and timing

Acting swiftly and thoroughly helps ensure your business is ready for an audit. However, preparation alone might not be enough. Instead, work with an ERTC attorney to anticipate unforeseen circumstances. This approach can help ensure your business is represented and that your documents and filings comply with IRS regulations.

Responding To An ERTC Audit Notice

When the IRS initiates an audit, your response timing and approach matter significantly. A structured response plan helps manage the audit process effectively. In these circumstances:

• Acknowledge the notice to respond within the specified timeframe to avoid further complications.
• Review the specific information the IRS is requesting.
• Gather all supporting documentation before the deadline.
• Maintain consistency across all submitted materials.
• Create a timeline of business operations during claimed periods.
• Organize communications about workplace restrictions.
• Map out wage payments against credit claims.

Your initial response to an audit notice sets the tone for the entire examination process. That is why we can help craft responses that address IRS inquiries while protecting your legal rights and maintaining beneficial positions for future discussions.

Potential Penalties For Errors In ERTC Claims

Mistakes in ERTC filings can lead to penalties, including:

• Repayment of erroneously claimed credits with interest
• Accuracy-related penalties up to 20% of underpayment
• Potential negligence penalties for inadequate documentation
• Civil fraud penalties in cases of intentional misrepresentation
• Additional tax assessments from disallowed credits

Penalties can have a severe financial impact on your business. Therefore, partnering with an ERTC audit lawyer can help minimize these risks, as they are trained to proactively identify and resolve compliance issues.

Simultaneous Claims: ERTC And PPP Loans

ERTC regulations contain numerous technical requirements that affect eligibility and credit calculations:

• Allocating wages correctly: Confirm that wages used for PPP loan forgiveness are not also claimed under ERTC.
• Clear documentation: Maintain separate records for each program to avoid confusion during an audit.
• Compliance with overlapping provisions: Follow IRS guidelines to avoid violations or penalties.

Missteps in handling simultaneous claims can lead to audits or penalties. But, once you understand these requirements, it can help prevent audit triggers and support successful outcomes.

Duration Of An ERTC Audit Process

ERTC audits can vary in length depending on the case complexity. Typical timelines include 4 to 6 months when the IRS completes the initial review. Delays can occur if additional documentation is required or if your response is incomplete. The final resolution timelines depend on the audit’s findings and the business’s preparedness.

Being organized and responsive can help expedite the process to avoid delays in the audit process, which can disrupt your business operations. This is a precise reason to have a legal defender like our team on your legal checklist.

Our experienced ERTC lawyers have previously handled similar cases before. In your circumstance, we can help keep the audit on track by managing correspondence and ensuring timely responses to IRS requests.

An Audit Is Not Proof Of Noncompliance

The ERTC was an emergency program to help businesses in need during a national emergency. Companies that took these credits had strong reasons to do so, and you have every right to mount a strong defense of yourself. You may need to provide evidence to support your side, such as:

• PPP loan paperwork
• Your credit and banking reports
• Employee records

By compiling the proper records, you build a case that defends your use of the tax credit. That said, simply having the evidence is not always enough.

Take Control Of Your ERTC Audit With Experienced ERTC Lawyers

As much as facing an ERTC audit can be discouraging, there are legal channels that can help you avoid common pitfalls and protect your interests in Georgia. Letting an ERTC firm like Bomar Law Firm take charge is a decision you will not regret. We provide clear, cost-effective legal solutions and focus on achieving results in every case. Our team offers a free one-hour consultation where we will review your unique situation and explain the flat fee we typically charge for cases like yours.

Conveniently based in Atlanta, we are here to guide your business through the challenges of IRS audits and tax concerns. Do not wait — please reach out via 404-841-6561 or our online form to schedule your consultation.