Employee Retention Credit (ERC) Forensic Review

You’ve claimed the Employee Retention Credit (ERC), but how do you know it was calculated and filed correctly? We will assess your ERC filing and provide you with peace of mind.

Scioto Mile – Columbus

What is an ERC Forensic Review?

Royse Partners can review your previously filed ERC claims to ensure they align with IRS guidelines for qualification, quantification, and substantiation.

What is the ERC?

The Employee Retention Credit (ERC) is a federal payroll tax credit that Congress enacted to help businesses keep workers employed through the worst parts of the COVID-19 Pandemic. The ERC has the potential to provide eligible taxpayers with refundable credits of up to $5,000 per employee for payroll periods in 2020, and up to $21,000 per employee for payroll periods in 2021.

Beware of ERC fraud.

With such high dollar credits at stake, many business owners pursued the ERC. Unfortunately, not all of their claims are valid. The IRS has seen an influx of incorrectly filed ERC claims initiated by third parties, so much so that the Service added the ERC claims to its annual Dirty Dozen list of tax scams in 2023.

Here’s what’s happening:

Some third parties have been aggressively marketing the ability to help taxpayers file ERC claims. These parties advertise to nearly all businesses indiscriminately, even the ones that likely aren’t eligible. In some egregious cases, third-party promoters of the ERC will encourage taxpayers to take improper or unsubstantiated tax positions, when determining eligibility for the credit or how much to claim.

These schemes are common, and the IRS encourages businesses to “be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true.” Businesses with incorrect ERC filings will not only have to potentially repay the credits if audited, but could also be subject to interest and significant penalties.

How can a forensic review help?

At Royse, we are aware that some unscrupulous third-party promoters are targeting business owners, and we want to help. We offer a streamlined process to assess not only whether your business was the target of one of these scams, but also assists in finding solutions if your filing is incorrect. Here is our process:

Step 1

Discovery Meeting

During our initial discovery meeting, we want to learn more about your business, your COVID experience, and your prior ERC claims. Our goal during this meeting is to determine if your business requires a full ERC Study Assessment.

Step 1

Step 2

ERC Study Assessment

In our ERC Study Assessment, we will review your ERC filings and all associated substantiation material, which can include any previously produced workpapers. We will review your data and closely scrutinize the workpapers that were used to calculate and substantiate your claim. This assessment will be conducted in accordance with the IRS Guidance for taxpayers claiming the ERC, as well as all relevant portions of the Internal Revenue Code to ensure compliance.

Step 2

Step 3

Determination

After reviewing your workpapers, Royse will determine the validity of your ERC claims and may come to one of the following conclusions:

1. You underclaimed the ERC.
2. Your ERC filing was correct.
3. You overclaimed the ERC.
4. You were not eligible for the ERC and should not have claimed the credits.

Step 3

Step 4

Solutions

Depending on the results from Step 3, Royse will recommend one or more of the following solutions:

1. Performing a new ERC study and recalculating the credits.
2. Amending the previously filed payroll tax forms to reflect the correct credit claims.
3. Preparing substantiation materials in accordance with IRS Notice 2021-20.
4. Obtaining legal counsel who can help you handle any potential IRS inquiries and/or pursuing proper action to any culpable third parties.

Step 4

Common Questions

Not all ERC studies are correctly completed. The IRS has seen an influx of incorrectly filed ERC claims that have been prepared by third parties. Although these third parties typically claim to have calculated your ERC correctly, that may not be the case. Qualifying for the ERC is not a simple process, and third parties that aggressively market the ERC to businesses often take shortcuts in their calculations to inflate ERC claims and receive higher fees. In a forensic review, we work with you and trusted tax professionals to fix the problem.

If we believe any previous calculations were incorrect, we will likely recommend performing a new ERC study for your business. During this study, we can recalculate the full ERC amount your business is entitled to and recommend a tax professional to amend your claim(s). We can connect you with accounting and/or legal professionals that can assist your business’s unique situation and take appropriate action with respect the IRS and any third party that may have failed to fulfill its duties.

During our forensic review process, we will first begin by asking you broad questions about the prior ERC study, how your business qualified, and how your credit was calculated. If we believe your claim is incorrect, we will further investigate to identify any errors. Depending on the outcome, we may recommend a new ERC study with Royse. In this study, we will not only recalculate the credit, but we will also provide a detailed substantiation report for the new claim(s). This report can be utilized in the event of an IRS Inquiry and can provide peace of mind that your claims not only follow the letter of the law, but also align with IRS guidance.

The IRS publishes a list of the 12 most common scams they anticipate taxpayers might encounter throughout the year. The Dirty Dozen list is intended to help taxpayers avoid fraud, but it also indicates which tax positions could be flagged for further attention.

The IRS added the ERC to the Dirty Dozen list for 2023 as improper ERC schemes from third-party promoters proliferated. The IRS believes many of these promoters are misleading businesses into believing they are eligible for a credit when, in many cases, the taxpayers are not.