Brotman Law May 4, 2024 9 min read

How El Paso Texas Businesses Can Protect Themselves From Employee Retention Tax Credit Audits

ERC Audit Defense in El Paso, Texas: Key Strategies for Local Businesses

Navigating the complexities of tax credits is often daunting for businesses. In El Paso, Texas, the Employee Retention Tax Credit (ERTC) provides significant benefits but also carries the risk of audits. Understanding how to protect your business from these audits is crucial to avoid costly penalties and stress.

In this article, we’ll provide practical advice on ERTC audit defense, covering compliance strategies, the role of a tax attorney, and more. Discover how to shield your El Paso business from ERTC audits.

Understanding the Employee Retention Tax Credit (ERTC)

The ERTC is a relief measure introduced to mitigate the financial impact of the COVID-19 pandemic on businesses. It offers a refundable tax credit against certain employment taxes for businesses that retained employees despite economic hardships due to COVID-19.

Eligibility for the ERTC requires businesses to have:

  • Experienced a significant decline in gross receipts during a calendar quarter.
  • Had operations fully or partially suspended due to government-related COVID-19 orders.

 

COVID-19 Orders That Impacted ERTC Eligibility in El Paso

El Paso had specific COVID-19 orders that affected local businesses. For example, in response to rising case numbers, the city enforced curfews and limited business operations at various points throughout 2020 and 2021. Understanding these local regulations is essential for accurately claiming the ERTC and preparing for potential audits.

Here are other types of local government orders issued in El Paso during the COVID-19 pandemic:

  • Emergency Declaration (March 13, 2020) - Mayor Dee Margo declared a local state of emergency, initiating various support measures and restrictions to mitigate the spread of COVID-19, significantly affecting business operations across the city.
  • Closure of Non-Essential Businesses (March 24, 2020) - An order was issued to close all non-essential businesses, which dramatically impacted local retail, leisure, and service industries, requiring them to cease in-person operations.
    Face Mask Requirement (May 1, 2020) - Businesses were required to enforce the use of face masks among staff and customers, affecting operational procedures and customer interactions in all public spaces.
  • Curfew Imposed (October 25, 2020) - A curfew was imposed due to a spike in COVID-19 cases, which limited operating hours for businesses and included fines for non-compliance, affecting night-time operations especially for restaurants and bars.
  • Limitation on Social Gatherings (November 2020) - All social gatherings were temporarily banned unless essential, affecting event venues, catering services, and other businesses that rely on group events.
  • Reduced Business Capacity Limits (December 2020) - Capacity limits were further reduced for all businesses, requiring many to operate at a severely reduced capacity, which impacted their revenue and operational logistics.
  • Temporary Ban on Elective Medical Procedures (April 2020) - A temporary suspension of all elective medical procedures was mandated to preserve medical resources, impacting various healthcare providers and related businesses.
  • Assistance Programs for Small Businesses (Various Dates) - The city launched multiple financial assistance programs to help small businesses cope with economic hardships caused by the pandemic, including grants and loans.
  • Reopening of Businesses Under Strict Protocols (June 2021) - With declining case numbers, a phased reopening of businesses began, subject to strict health protocols, which required businesses to invest in health safety measures and training.
  • Vaccination Incentives for Employees (Mid-2021) - Businesses were encouraged to provide incentives for employees to get vaccinated, with some support from city initiatives, aiming to accelerate the safe reopening of the economy.

These orders played a crucial role in shaping how businesses in El Paso navigated the economic and health challenges posed by the pandemic, requiring significant adaptations in operations, customer service, and employee management.

Why ERTC Audits Occur and How to Prepare

The Internal Revenue Service (IRS) conducts audits to ensure compliance with tax laws, including verifying that businesses claiming the ERTC meet all eligibility requirements. Audits may be triggered by inconsistencies in tax filings, large ERTC claims, or random selection.

Common ERTC Claim Mistakes to Avoid

Businesses often make errors when claiming the ERTC, such as misunderstanding eligibility criteria, poor record-keeping, or incorrect credit calculations. Avoiding these mistakes is crucial for reducing audit risks.

Essential Documentation for ERTC Audit Defense

Successful ERTC audit defense relies on thorough documentation, including:

  • Payroll records detailing employee wages
  • Records of health plan expenses
  • Financial statements indicating a decline in gross receipts
  • Documentation of business operations being impacted by COVID-19

The Role of a Tax Attorney in El Paso ERTC Audit Defense

A skilled tax attorney can be invaluable during an ERTC audit. They can help you understand complex ERTC requirements, assist in negotiating with the IRS, and resolve disputes. In El Paso, choosing a tax attorney with specific experience in ERTC audit defense is essential.

Implementing Strong Compliance Practices

Continuous compliance is vital. Regularly update your understanding of ERTC eligibility criteria and IRS guidance. Consider appointing a dedicated team or individual within your business to manage ERTC compliance.

Proactive Measures: Internal Reviews and Mock Audits

Conducting internal reviews and mock audits can help identify and address potential issues before the IRS does. These proactive measures can significantly reduce the risk of an unfavorable audit outcome.

Responding to an IRS Notice or Audit

If you receive an IRS notice, respond promptly and consult with your tax attorney. Maintain a cooperative stance during audits, providing clear and concise answers to IRS queries.

Conclusion: Building a Comprehensive Audit Defense Strategy

Protecting your El Paso business from an ERTC audit involves meticulous planning and diligent compliance. With the right preparation and professional guidance, you can maximize the benefits of the ERTC while minimizing audit risks.

Remember, proactive measures and expert assistance are your best defenses against potential audits. Engaging a knowledgeable El Paso tax attorney specializing in ERTC audit defense is a wise investment to safeguard your business.

 

"Sam is a wonderful, results-oriented and extremely knowledgeable and talented attorney, who really has 'heart' in working on behalf of his clients, and explains options in a straightforward, respectful manner. He has assisted us with great outcomes which have added to our quality of life. I would not hesitate to recommend Sam for his services as he is an ethical, personable and expert attorney in his field. You will likely not be disappointed with Sam's work ethic, approach and his efforts."

-Aileen Dwight, Licensed Clinical Social Worker & Psychotherapist

Last updated: May 18, 2024

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