What to do if you filed an employee retention credit claim with the IRS

ERC submissions are under scrutiny by the IRS due to a surge in questionable claims. Are you confident your claim meets the eligibility requirements and can stand up to a potential audit?

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What to do if you filed an employee retention credit claim with the IRS

ARTICLE | September 19, 2023 | Authored by RSM US LLP

The employee retention credit (ERC or ERTC) was originally enacted in the CARES Act in March of 2020 at the onset of the COVID pandemic. Congress acted quickly by enacting this credit to get money in the hands of employers who were continuing to pay employees despite being affected by COVID mitigation measures. Specifically, those effects were a significant decline in gross receipts (which is objective) or a full or partial suspension from government orders (which is very subjective).

Over time, the credit has been changed, and many businesses have been filing. Though the ERC ended for most on Sept. 30, 2021, many businesses continue to file because the statute of limitations is still open. Specifically, the statute for 2020 claims ends April 15, 2024 (taxpayers have another year beyond that for 2021 claims).

Determining eligibility is complex and includes careful analysis and calculation of qualified wages.

The IRS announced an immediate halt to processing ERC claims. Now what?

On Sept. 14, the IRS will discontinue processing claims for the remainder of 2023 in an attempt to limit fraudulent activity in the employee retention credit market. The IRS hopes this measure will reduce the number of fraudulent claims encouraged by third-party providers.

We expect there will be significant delays in processing ERC claims in 2024 when the IRS resumes processing procedures.

The announcement is also significant for those taxpayers who have already filed ERC refund claims but should not have due to ineligibility. Additional procedural guidance from the IRS is expected to allow taxpayers the ability to withdraw claims that have not been processed.

Further, the IRS also intends to provide guidance for those who have received refunds in error, who want to pay them back to avoid penalties and future compliance action.

Understand what options are available for submitted ERC claims

First, and most importantly, employers should work with their trusted tax professional.

The IRS provides some red flags for recognizing some of the aggressive promoters which include:

  • Unsolicited calls or advertisements
  • Statements about it being easy or determinable in minutes
  • Large upfront fees or fees based on the size of the credit

Companies that did engage parties like this should have tax professionals review their substantiation to determine whether it appears to be valid or outside the provided guidance. The IRS published some guidance in July 2023 on supply chain impacts, for example, and in cases where employers were claiming a partial suspension from supply chain impacts, the IRS is expecting to see support of specific government orders and substantiation that suppliers were impacted by those orders. This is only one area of possible impact, but it’s an example of what employers need to be prepared for if the IRS reviews their claim.

You’ve submitted your ERC claim but haven’t received payment. What’s next?

Many employers, even with valid claims, are still waiting for refunds. These entities should expect more delays in processing (even beyond what we were experiencing before) and possibly will receive additional questions from the IRS. In some cases, such entities may be pulled for exam before the IRS issues a refund. The IRS can also commence examination even after the refund is issued.

Also, taxpayers need to be aware that even if a refund is issued, if it is later deemed invalid, the IRS has two years from the date the refund was issued to commence erroneous refund claim action. Erroneous refunds are subject to a 20% penalty.

Recommendations for navigating your ERC claim

The IRS is expected to provide additional guidance for taxpayers about how to withdraw or amend an ERC claim.

If you choose to withdraw your ERC claim or pay back a previously received credit, work with a qualified tax professional to ensure the appropriate steps are taken to protect yourself from potential penalties or interest. 

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Call us at (541) 773-6633 (Oregon), (208) 373-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.

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This article was written by Anne Bushman, Alina Solodchikova and originally appeared on 2023-09-19.
2022 RSM US LLP. All rights reserved.

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

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IRS Audit Alert: Are You Making These Common Mistakes?

Worried about getting audited by the IRS? Check out the statistics on IRS audits and tips to reduce your risk of being audited.

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IRS Audit Alert: Are You Making These Common Mistakes?

Article | September 15, 2023 | Authored by KDP LLP

The Internal Revenue Service (IRS) conducts audits to ensure both individuals and businesses are complying with tax laws and accurately reporting their income and deductions. Even though audits are relatively rare, certain income brackets and specific actions can attract the attention of the IRS. In this article, we’ll provide audit rates from the most recent IRS Data Book, along with tips to minimize your risk of audit.

IRS audit rates

Each year the IRS releases the Data Book, which provides valuable statistics on IRS audit activity. According to the data for 2019 tax returns, the likelihood of an audit increases with higher income levels. Taxpayers earning between $1 million and $5 million face an audit rate of 1.3%, while those with incomes over $10 million have close to a 9% audit rate. In comparison, the audit rate for taxpayers earning between $25,000 to $500,000 is around 0.2%. 

Estate tax returns also face more rigorous examinations compared to personal tax submissions. For the 2019 tax year, the IRS examined 1.4% of estate tax submissions, a significant contrast to the percentage of personal tax submissions inspected. 

To provide a better understanding of the likelihood of an audit and the respective factors contributing to it, we have included a table highlighting the most recent IRS audit rates based on 2019 tax returns. This table illustrates the audit rates across various income levels and the differential scrutiny of tax returns such as personal and estate tax submissions. Please note that the IRS can pursue new enforcement actions for 2019 tax returns through at least 2023, so these estimates could still change. 

Return type

Percentage of returns examined

Individual Returns


Returns with EITC


No total positive income


TPI $1-$25,000


TPI $50,000-$75,000


TPI $75,000-$100,000


TPI $200,000-$500,000


TPI $500,000-$1 million


TPI $1 million-$5 million


TPI $5 million-$10 million


TPI > $10 million


Business Returns


Total Corporation income tax returns


Partnership returns


S-corporation returns


Estate tax returns


How long does the IRS have to audit you? 

In general, the statute of limitations for an audit runs three years from the time you file your return. Technically, the statute of limitations clock starts running on the later of your filing date or the actual due date, so filing early will not necessarily start the clock earlier. And, if you fail to file or forget to sign your return, it is not considered a valid return, and the clock does not start until the error is resolved.

In some situations, you could face an audit up to 6 years after your return was filed or due, whichever is later. For instance, if you omitted more than 25% of your income, the statute of limitations is doubled to 6 years. If you overstated your cost basis on the sale of an asset that reduced taxable income by more than 25%, the statute of limitations is doubled to 6 years. Worse yet, there are circumstances in which the statute of limitations never runs out, meaning the IRS can audit you indefinitely. If you never file a return or file a fraudulent return, there is no time limit.

While never filing a return or filing a fraudulent return seem like obvious reasons for no time limit, there are many less obvious situations. For example, forgetting to include certain forms when required, such as Form 3520 for receiving a gift or inheritance from a non-U.S. person or Form 8938 for overseas assets causes the statute of limitations clock to not even start.

The IRS’s time limits are anything but simple, and there are many exceptions to the general three-year statute of limitations rule. This is why it’s imperative that you work with a seasoned CPA when filing your taxes, as even minor mistakes and oversights can cause an audit and lead to large civil penalties and potential criminal liability. 

Strategies to reduce audit risk

While the risk of an audit may be small, it’s important to understand common triggers for an audit and, when possible, how to avoid them.  

Report income accurately

One of the most critical steps in avoiding an IRS audit is to report all income and expenses accurately. Underreporting income can raise red flags with the IRS, increasing the likelihood of an audit. This can be triggered when the income sources and amounts reported on your tax return are inconsistent with those reported by third parties. 

Income taxes originating from regular wages are typically withheld and reported by your employer. However, non-wage earnings, such as capital gains and dividends, usually do not have taxes withheld, making them more susceptible to inconsistencies and scrutiny by the IRS. 

To ensure you accurately report all sources of income, we have compiled a table that outlines common types of income, their associated tax forms, and the deadlines by which you should receive these forms.

Type of Income

Relevant Form

Should be Received by

Regular Wages


Jan. 31

Independent Contractor Income


Feb. 1

Partnership Income

Schedule K1

Mar. 15

Misc. Income (e.g., rent, royalties)


Feb. 1

Social Security


Jan. 31

Distributions from Retirement Accounts, Pensions, Annuities


Jan. 31

Real Estate Sale


Feb. 15

Securities Sale


Feb. 15



Jan. 31



Jan. 31

Deductions and credits

It’s important to fully understand the eligibility criteria for deductions and credits when filing your taxes. If you are unsure of your eligibility for deductions or credits or plan to claim complex deductions, it’s wise to seek professional guidance. 

Be specific when listing deductions, especially if you’re deducting things like travel, advertising, inventory, and office supplies. If any significant changes or discrepancies in your deductions occur, you can provide an explanatory statement with your return to prevent arousing suspicion. 

Avoid claiming excessive or unusual deductions, particularly for business expenses, as this can be an audit trigger. If you claim a home office deduction, make sure you understand and follow the IRS rules. The space must be used exclusively and regularly for your business, and it must be the principal place of your business. 

Also, claiming a sizable charitable tax deduction relative to your total income could draw the attention of the IRS. Be prepared to provide documentation to support any figures you report on your return, and only report the actual amount of deductions for which you are eligible.

Business Losses

It’s common for businesses, particularly new ones, not to be profitable. However, reporting losses for an extended number of years or showing a big swing in losses may attract the attention of the IRS. The underlying expectation is that a business should generate profits over the long term, and the IRS may seek explanations if this doesn’t occur. And, of course, if your business shows an unusually high loss, it could trigger a red flag. 

Double-check your tax return

Always thoroughly check your tax return for accuracy and unintentional omissions. Ensure all math and figures are correct, and confirm that you’re using the appropriate number of exemptions. Note that round numbers on your tax return can look suspicious, so it’s best to use exact amounts whenever possible. 

Make certain that all figures match up with other tax-related forms (such as your 1099 or W-2), as data entry errors are a frequent red flag for auditors. While the IRS’s automated system will detect discrepancies, it won’t be apparent whether the discrepancy was accidental or intentional.

Electronic filing

Timely, electronic submission of your tax return can also reduce the likelihood of an audit. The error rate for a paper return is significantly higher than that for returns filed electronically, mainly because tax software helps to correct errors. By filing electronically, you are less likely to make errors and more likely to avoid an audit.

Understanding the frequency of IRS audits and common triggers can help reduce the likelihood of an audit. While this article provides insights on audit rates and strategies to reduce your risk, there’s no substitute for personalized advice based on your unique situation. If you have any questions or would like assistance with your tax return, please contact our office to speak with one of our expert advisors.

Let’s Talk!

Call us at (541) 773-6633 (Oregon), (208) 313-7890 (Idaho) or fill out the form below and we’ll contact you to discuss your specific situation.

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KDP Certified Public Accountants, LLP is a team of CPAs and business advisors with a local focus, but a national reach. We have offices in Medford, Oregon and Boise, Idaho, as well as satellite offices throughout the United States. We have been providing professional tax, accounting, audit, and management advisory services since 1976, serving clients nationwide. Our firm has more than 90 trained professionals on staff dedicated to furnishing high-quality, timely and creative solutions for our clients.

For more information on how KDP LLP can assist you, please call us at:

Oregon Office:
(541) 773-6633

Idaho Office:
(208) 373-7890.