Seven Warning Signs of an Incorrect ERTC Claim

The Employee Retention Tax Credit (ERTC) was a tax break that gave relief to employers following the COVID-19 pandemic. Many employers claimed this credit improperly because they worked with shady services rather than a reputable ERTC tax attorney.

To help honest taxpayers repay mistakenly claimed ERTC funds, the IRS launched a Voluntary Disclosure Program. This program is now past its deadline, but if you still have a pending claim or an ERTC check you haven’t deposited yet, you should revise your documentation and consider withdrawing your claim if you notice any errors.

Seven Signs Pointing to Incorrect ERTC Claims

Following a flood of improper ERTC applications, the IRS started looking more closely for ineligible or incorrectly calculated claims. An employee retention tax credit lawyer can help check your claim for the following seven common issues.

1. Claiming the Credit for Too Many Quarters

Although the ERTC was available for quarters 2-4 of 2020 and quarters 1-3 of 2021, qualifying for the credit in one quarter doesn’t ensure your eligibility for other quarters. You should review your claim to ensure you only claimed the credit for the quarters in which your company was eligible. 

2. Claiming the Credit for Quarters in Which Your Business Didn’t Exist or Pay Wages

Some claims are clearly ineligible, with records showing that the employer didn’t even carry an EIN or employ any workers during the tax periods for which they claimed the credit. The IRS disallows such claims and may choose to audit the filing business. 

3. Not Meeting Eligibility Requirements

Not every COVID-related government order that was active in your area means you qualify for the credit. You need to show that the order caused your business to suspend its operations fully or partially. If you have doubts on this point, consult an ERTC eligibility attorney.

4. Wage Miscalculations 

Even if your business is eligible for the ERTC, not all employee wages qualify. You must revise all employee wages to avoid mistakes such as overclaiming the ERTC or claiming it on ineligible wages, like majority owner wages.

5. Overclaiming for a Tax Period

If your business qualified for the ERTC during a specific calendar quarter, the eligibility may still not extend to the entire quarter. For example, maybe a government order suspended your operations for only two months out of a quarter. In this case, you should claim the ERTC only for wages you paid during those two months.

6. Claiming the ERTC Based on Supply Chain Disruptions

By themselves, supply chain issues don’t make you eligible for the credit. You’d need to show that you had no alternative supplier and that your usual supplier was under pandemic-related restricting orders. Seek ERTC legal counsel if you’re unsure whether supply chain disruptions qualify you for the ERTC.

7. Applying for the Credit Under Pressure From a Promoter

Beware of potential tax issues if a high-pressure ERTC promoter convinced you to claim the credit. If the IRS discovers you claimed the credit incorrectly, you’ll have to repay it, possibly with penalties and interest. You may also face an audit. A tax attorney for ERTC claims can help you revise your documents in accordance with IRS guidelines.

Call Levy & Associates for Questions About Your ERTC Claim

Do you have questions about your pending ERTC claim? Call Levy & Associates to consult a qualified ERTC tax advisor today. Our hardworking team of tax credit attorneys, CPAs, and former revenue officers can review your claim and let you know whether you should withdraw or modify it. Call 800-TAX-LEVY or contact us online for advice from an ERTC tax attorney.

Contact Levy & Associates for Dependable Tax Audit Services

Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.

There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.