ERC Documentation

The Internal Revenue Service has posted documentation standards for the Employee Retention Credit (ERC) in its Notice 2021-20, question 70.  This is the summarized information the IRS will be looking for if selected for an audit.

  • Documentation proving employer eligibility including paid qualified wages.  Forms of documentation include:
    • Government orders suspending business operations
    • Records the employer relied on showing that more than a nominal amount of the business was suspended due to the government order suspending business
    • Records showing a significant decline in gross receipts
    • Records showing qualifying wage amounts
    • For large eligible employers, payment records showing the wages paid to the employee when the employee was not providing services
  • Documentation showing allocable qualified health plan expenses
  • Documentation showing consideration for aggregated group status, and if so, how the aggregation affects allocation of the credit
  • Advanced payments of the credit (Form 7200) submitted to the IRS
  • Employment tax returns submitted to the IRS, or documentation provided to third-party payers

For the full Notice 2021-20: https://www.irs.gov/pub/irs-drop/n-21-20.pdf

NOTE: Many taxpayer are being aggressively solicited by firms suggesting the Employee Retention Credit is “free money” and that “all businesses” qualify.  If you engage with another firm due your due diligence to make sure the items listed in this IRS notice are being addressed with the supporting documentation for the refund claim.  The IRS has a 5 year window where it is allowed to come in and audit these refund claims.  If this documentation is not in place your refund claim will be at risk.