Brotman Law May 5, 2024 14 min read

Strategies for ERTC Audit Defense: A Guide for Montana Businesses

Defend Yourself Against Employee Retention Tax Credit Audits

In Montana, where the landscape of business spans from booming tech startups in Bozeman to traditional agricultural operations in Billings and tourism-driven enterprises in Missoula, the Employee Retention Tax Credit (ERTC) has been a significant form of relief during the COVID-19 pandemic. This federal incentive is designed to support businesses that managed to keep employees on the payroll during times of economic uncertainty and operational disruption. However, receiving the ERTC also subjects businesses to the risk of audits by the IRS. It's essential for Montana businesses to understand the intricacies of the ERTC and implement solid strategies to prepare for and defend against such audits.

This article will detail how businesses across Montana can effectively navigate ERTC audits, emphasizing the unique aspects of the state's diverse economic sectors and offering detailed advice on leveraging local expertise, such as tax attorneys, to bolster audit defense.

ERTC Overview for Montana Businesses

The ERTC provides a refundable tax credit to employers who retained staff despite experiencing financial hardships related to COVID-19. These hardships include a significant decline in gross receipts or operations being fully or partially suspended due to government-mandated restrictions.

Overview of COVID-19 Pandemic-Related Orders on Montana Businesses

In Montana, a range of COVID-19 orders issued during 2020 and 2021 significantly influenced local businesses, affecting their operations and their ability to claim the Employee Retention Tax Credit (ERTC). These orders, initiated under the authority of the state's governors—first by Governor Steve Bullock and later by Governor Greg Gianforte—were critical in managing the pandemic's impact on the state's economic landscape. Here's how these directives specifically impacted businesses in relation to the ERTC and their audit defense:

  1. Statewide Stay-at-Home Order (March 26, 2020): Issued by Governor Bullock, this order required non-essential businesses to close, directly affecting their revenue and operational capacities, which are crucial factors for ERTC eligibility.
  2. Mandatory Mask Mandates (July 2020): Enforced in counties with four or more active cases, this mandate affected customer-facing businesses, potentially impacting their employee retention strategies and complicating the ERTC claim process.
  3. Phase 2 of Montana's Reopening (June 1, 2020): This phase increased operational capacities for businesses, which influenced their ability to retain employees and maintain eligibility for the ERTC.
  4. Directive Lifting Certain Restrictions (February 12, 2021): Governor Gianforte’s directive, which lifted some restrictions on businesses, aimed to stimulate economic activity, thereby impacting the parameters for claiming the ERTC as businesses began to recover.
  5. Restrictions on Bars, Restaurants, and Casinos (November 2020): These targeted restrictions under Governor Bullock limited business hours and capacity, directly affecting revenue and complicating the sustainability of employee retention, a key factor for ERTC claims.
  6. Public Health Emergency Extension (Multiple in 2021): Extended state of emergency declarations provided ongoing justification for businesses to claim ERTC due to continued government-mandated limitations on their operations.
  7. Vaccine Rollout and Business Participation (Early 2021): Encouragements for business involvement in vaccine distribution efforts offered potential boosts in operational capacity and employee safety, influencing ERTC eligibility through maintained or increased workforce levels.
  8. Financial Assistance for Businesses (Throughout 2020 and 2021): Various state-funded programs aimed to support businesses financially, affecting their revenue calculations and potential ERTC claims by offsetting some operational costs.
  9. Ban on Vaccine Passports (April 2021): This policy by Governor Gianforte affected businesses by limiting how they could mandate health safety measures, potentially impacting employee retention strategies linked to safe working environments, relevant for ERTC audits.
  10. Formal End of the State of Emergency (June 30, 2021): The end of the emergency period marked a significant transition for businesses in terms of returning to "normal" operations, influencing their final periods of ERTC eligibility and the need for meticulous documentation for audit defense.

Montana's Major Cities and ERTC Implications Caused by Government Order

The COVID-19 pandemic's impact on Montana's major cities brought distinct challenges to each locality, influencing their business operations and the strategies employed to navigate through the crisis, particularly in relation to the Employee Retention Tax Credit (ERTC).

  • Bozeman: Bozeman, a burgeoning tech hub, experienced significant disruptions due to the pandemic. With its rising profile in the tech industry, the city saw delays in venture capital investments and disruptions in project timelines as stakeholders reassessed economic stability and market demands. These interruptions not only hindered growth but also affected the companies’ ability to maintain consistent employment levels, a critical component of ERTC eligibility. As businesses struggled to push forward projects, retaining skilled employees became a strategic focus to ensure rapid recovery post-pandemic, making the documentation of these disruptions vital for ERTC claims.
  • Billings: As Montana's largest city and a pivotal agricultural center, Billings faced severe disruptions in the food supply chain. The closure of restaurants and reduced operations in food service sectors led to an immediate impact on demand for agricultural products, affecting revenues and operational continuity. These factors critically influenced the agricultural businesses' ability to retain staff, directly affecting their qualification for the ERTC. Ensuring thorough documentation of revenue impacts and employee retention efforts was essential for defending against audits and substantiating ERTC claims.
  • Missoula: Known for its arts and robust tourism sector, Missoula suffered from significant reductions in tourist activities and widespread event cancellations. The local businesses, many of which rely heavily on the influx of tourists, faced drastic reductions in customer foot traffic and sales. This led to difficult decisions regarding staffing and operational scales. The city’s arts and cultural sectors, in particular, needed to innovate rapidly to survive, often shifting to virtual platforms which presented unique challenges and opportunities for claiming the ERTC. Documenting these transitions and their impacts on operations and employee retention was crucial for audit defense.
  • Great Falls: In Great Falls, the retail and service sectors saw a substantial decline due to decreased consumer spending and prolonged closures. The city's businesses, particularly small retailers, had to navigate maintaining their workforce in the face of uncertain sales and reduced operational hours. This situation made the ERTC a critical financial buffer, aiding businesses in keeping their staff employed during downturns. Effective management of ERTC claims in Great Falls required meticulous record-keeping of the economic impact and strategic documentation to support audit defenses.

For businesses across these cities in Montana, understanding the nuanced impact of COVID-19 on their specific operations and how these impacts relate to ERTC eligibility has been crucial. Effectively claiming the credit and defending against audits necessitates a deep understanding of both local economic conditions and the detailed requirements of the ERTC program.

The Crucial Role of Tax Attorneys in ERTC Audit Defense

Tax attorneys are pivotal in guiding Montana businesses through the intricacies of ERTC audits. Their role extends beyond mere consultation—they are strategists and defenders of the businesses' claims to the credit. They start by providing a deep dive into the maze of complex tax laws that govern ERTC eligibility. Their expertise in both federal and Montana-specific tax guidelines ensures that businesses do not falter in the legal nuances that could jeopardize their claims.

Preparation for an audit is another critical area where tax attorneys prove invaluable. They assist businesses in organizing and effectively presenting the necessary documentation to substantiate their ERTC claims. This meticulous preparation includes gathering detailed payroll records, financial statements, and proofs of compliance with COVID-related safety measures—each piece of documentation acting as a bulwark against potential audit pitfalls.

Moreover, when audit findings come into question, tax attorneys stand at the forefront of negotiations with the IRS. They advocate robustly on behalf of businesses, aiming to resolve audit findings in a manner that upholds the businesses' interests. Their negotiation skills can be the difference between a favorable resolution and a costly one, making their role in the audit process critically strategic.

Proactive Steps for ERTC Audit Defense Preparation

Aware of the stakes involved, Montana businesses are advised to take proactive measures to minimize their audit risks. Regular reviews of ERTC claims are essential; these ensure all claims are accurate, justified, and well-documented. This process often involves revisiting and scrutinizing every claim entry to make sure it aligns perfectly with IRS requirements, thereby reducing the likelihood of discrepancies during audits.

Engagement with tax professionals does not end with one-off consultations. Ongoing interactions with tax experts are crucial as they keep businesses abreast of any legislative changes that might affect ERTC guidelines. These regular updates help businesses adapt their strategies and documentation in real-time, ensuring continuous compliance with evolving tax laws.

Additionally, implementing mock audits is becoming a popular strategy among Montana businesses. These practice runs simulate an IRS audit and can be instrumental in identifying weak spots in the businesses’ audit armor. By addressing these vulnerabilities beforehand, businesses can rectify issues before they ever catch the eye of the IRS, significantly decreasing the chances of adverse audit outcomes.

Conclusion: A Final Word on ERC Audit Defense in Montana

Navigating the ERTC audit landscape in Montana demands more than just a reactive stance—it requires strategic foresight and meticulous preparation, championed by the expertise of skilled tax attorneys. For businesses that take advantage of the ERTC, engaging proactively with tax professionals and adopting comprehensive audit preparation practices are not just recommended strategies but essential ones. These efforts ensure that businesses can confidently defend their claims, secure their rightful credits, and continue contributing to Montana’s economic resilience in the face of ongoing global challenges.

"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

Receive the Best of
Brotman Law

Get this topic delivered straight to your inbox.

New call-to-action



Our best stuff: secrets, tax saving tools, and tax defense strategies from the braintrust at Brotman Law.

  • Expanded benefits during your first consultation with the firm.
  • Priority appointment scheduling and appointment times.
  • Complementary access to our firm’s concierge services.
  • Receive updates and “insider only” tax strategies and tactics.
  • And many more benefits.

Not Sure Where to Start?

Step 1 Start Here

Start Here

These ten big ideas will change the way you think about your taxes and your business.

Start Here

Step 2 Learn About Your Situation

Learn About Your Situation

Find the articles and videos you need to make the right tax decisions in the learning center.

Visit the Learning Center

Step 3 Explore Our Services

Explore Our Services

It is not just about what we do, but who we are, why we do it, and how that benefits you.

View All Services

Step 4 Get Your Game Plan

Get Your Game Plan

Meet with us to outline your strategy. No further obligation, 100% money-back guarantee.

Book an Action Plan