The COVID-19 pandemic forced many businesses to cease or dramatically change operations due to government mandates.

In response, Congress passed programs as part of the CARES Act to provide financial assistance to companies affected by the pandemic. One of these programs was the Employee Retention Credit (ERC)—a tax credit that most CPAs are at least somewhat familiar with.

In short, the ERC gives eligible employers payroll tax credits for wages and health insurance paid to employees during the pandemic. Unfortunately, many businesses did not take advantage of the program due to confusion surrounding qualifications. Since the IRS (Internal Revenue Service) issued guidance related to eligibility in 2021, the confusion around ERC qualifications has decreased, and business owners have become more aware of the tax credit. However, misconceptions about the ERC remain and have made the filing process difficult to navigate without qualified assistance.

ERC scams have become such an issue that the IRS has issued multiple warnings for businesses to carefully choose who prepares their ERC application and added ERC mills to the Dirty Dozen list. Given the high amount of fraud surrounding the ERC, it comes as no surprise that the IRS has begun scrutinizing ERC applications more closely—meaning audits are more likely.

Here’s what CPAs need to know about ERC audits and how qualified advisors can support clients’ ERC claims.

The Employee Retention Credit Audit Process

If the IRS flags...

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