In an effort to keep businesses afloat during the COVID-19 pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") in 2020. One of the key provisions was the Employee Retention Credit ("ERC"), a refundable tax credit designed to encourage businesses to retain and pay employees during the pandemic.
At the time, Congress directed the IRS to get the ERC funds out to businesses immediately, without first verifying whether a particular business qualified for the ERC. It was a "pay now, ask questions later" situation. Well…"later" has arrived. The IRS is now redirecting an army of examiners to audit businesses that claimed the ERC for previous years.
ERCs top the IRS's Dirty Dozen list for 2023. While some ERC audits of businesses are already underway, the IRS is also pursuing certain advisors and promoters. At a recent meeting, Jim Clifford, director of return integrity and compliance service at the IRS, explained that the IRS is going after promoters who encouraged businesses to file frivolous ERC claims. Considering how many businesses claimed ERCs in 2020 and 2021, and the complexity involved with verifying the integrity of the claims, it will be interesting to see how the IRS enforces audits of business and advisors going forward.
