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Employee Retention Credit (ERC)  - Part 3: Preparing for an ERC-Related Audit

Posted by Juda Gabaie | Feb 21, 2023 | 0 Comments

If you're an employer who has claimed a COVID-related Employee Retention Credit (ERC), you may be concerned about being audited. Or perhaps you've received an audit notice from the Internal Revenue Service (IRS). If that's the case, don't panic. An audit doesn't mean that you're already suspected of wrongdoing. You may have been randomly selected for an audit. But even so, it's important to take the audit seriously.


Bloomberg Tax's experts say the IRS's current focus in ERC audits is on reviewing companies' eligibility for the credit.

Therefore, if you claimed eligibility based on a government closure, you'll want to provide notices relating to the government order and how you recorded the impact of your shutdown.

On the other hand, your ERC claim is based on a drop in revenue. You'll want to provide evidence relating to your 2019 and COVID-era earnings to show the pandemic's impact on your gross receipts. 


Collect documents that establish your company's revenue and those that document your workforce during the relevant time periods.

Relevant documents would include:

  • Lists of all full- and part-time employees (with dates of employment)
  • Lists of owners and others with a financial interest in the business
  • Payroll logs
  • Information relating to employer-paid health care insurance premiums
  • Previous tax returns and other related tax forms (e.g., Forms 7200)
  • Documentation relating to gross receipts
  • PPP applications and loan forgiveness programs
  • Government notices that mandated business shutdowns or otherwise limited the company's operation

And it's better to collect this information now rather than try to reconstruct it for an audit years after the fact. This is particularly true since, by definition, it will pertain to a COVID-era period when businesses were in upheaval.


ERC requirements appear straightforward, but—as we discussed in our first post—they changed repeatedly throughout the COVID pandemic. The result is that a complicated patchwork of rules dictates ERC compliance. Information that was accurate a few months ago is no longer valid.

Consider hiring a Maryland tax attorney to help you prepare for an ERC audit. An attorney can review your eligibility and prepare the necessary documentation. They can recommend a strategy for amended filings or even help you negotiate a payment plan with the IRS if it's warranted. 


If you have received an IRS notice regarding an employee retention credit-related audit, don't wait. Contact tax attorney Juda Gabaie at Gabaie & Associates, LLC by calling (410) 358-1300 or emailing us to schedule a free consultation. We specialize in helping Baltimore, Columbia, Rockville, and Frederick employers with their tax issues. Call now.

About the Author

Juda Gabaie

Juda Gabaie Esq. has dedicated his career in defending clients nationwide to resolve tax disputes before the Internal Revenue Service and the state taxing agencies. Juda has represented clients before the US Tax Court, Maryland Tax Court, and Comptroller of MD hearing compliance. As an adjunct prof...


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