Ensuring Your ERC Filings are Substantiated
Businesses Can Owe 100% of Their ERC Claims Plus Penalties and Interest
The IRS mailed more than 12,000 letters to businesses recapturing ERC claims previously paid. Businesses receiving these recapture notices now owe a portion or in some cases all of their previously paid ERC, plus penalties and interest dating back to the date the ERC was paid.
Thousands of ERC claims are currently under audit. The first round of letters covered Tax Year 2020. Letters covering Tax Year 2021 are anticipated in the coming months. It is imperative that Taxpayers proactively work
to substantiate their ERC claims.
Information Document Requests issued in ERC examinations may include:*
Forms 941 for quarters ending June 30, 2020, Sep. 30, 2020, Dec. 31, 2020, March 31, 2021, June 30, 2021, Sept. 30, 2021, and Dec. 31, 2021.
Worksheet 1 or similar worksheet(s) used to compute the ERC included on the amendment returns for the 4th quarter of 2020 and 1st, 2nd, and 3rd quarters of 2021;
Payroll journal for the months of March 2020 through December 2021.
List of employees paid sick and/or family leave;
The dates employees were paid sick and/or family leave;
The amounts paid to each employee for sick and/or family leave;
Employee statements about the COVID-19-related reason why they requested leave and written support for that reason
Statements required to be provided by employees that the employee is unable to work, including by means of telework, for that reason;
Documentation to show that the amount of qualified sick and family leave wages paid to employees that are eligible for the credit was determined, including records of work, telework and qualified sick leave and qualified family leave;
Documentation to show how the amount of qualified health plan expenses that the employer allocated to wages (if applicable) was determined;
Forms 2020 and 2021 Forms W-2;
Business Income Tax Returns for 2020 and 2021 (for review only if available);
List of Employees who were paid wages for which the ERC was claimed;
List of any individuals related to a shareholder owning 50% of the capital and profits interests in the entity who are employed by the company;
Wages paid to each employee for which the ERC was claimed;
Documentation that operations were fully or partially suspended due to orders from appropriate government authority limiting commerce, travel, or group meetings due to COVID-19, OR documentation that the taxpayer experience a significant decline in gross receipts;
Documentation to show the taxpayer determined the amount of qualified health plan expenses that the employer allocated to the ERC;
Documentation related to PPP loans and related forgiveness including wages included on the loan application;
Spreadsheet or breakdown of gross receipts; and
Analysis or break down of how wages were allocated between the ERC credit and the PP loans. Specifically for quarters ending June 30, 2020, Sep. 30, 2020, Dec. 31, 2020, March 31, 2021, June 30, 2021, Sept. 30, 2021, and Dec. 31, 2021.
*Some U.S. territories, like the CNMI or Guam, have varying requirements. For example, in lieu of Profit & Loss statements, the CNMI and Guam require Form OS-3105 to be completed, a gross revenue and tax computation form. Additionally, Guam requires Form GRT-1, Monthly Gross Receipts Use and Occupancy Tax Return to be completed.