Brotman Law June 27, 2024 17 min read

ERTC Audit Tips for Nebraska Businesses

Learn How Nebraska Businesses Can Best Prepare for ERTC Audits

In Nebraska, where the economy is driven by key industries such as agriculture in the Platte Valley, manufacturing in Omaha, and significant public and private sectors in Lincoln, the Employee Retention Tax Credit (ERTC) has provided substantial support during the COVID-19 pandemic. This federal aid has enabled businesses across the state to maintain employment during challenging economic times. However, the benefits of the ERTC come with the oversight of potential IRS audits, which necessitate a thorough understanding of ERTC compliance for Nebraska businesses to ensure they continue to benefit from the program without interruption.

This guide will outline effective strategies for navigating ERTC audits, specifically tailored to the unique economic and industrial landscape of Nebraska, emphasizing the critical role of proactive preparation and legal expertise in audit defense.

Overview of ERTC for Nebraska's Diverse Economy

The ERTC offers a refundable tax credit to employers who kept staff on payroll despite experiencing significant operational disruptions or declines in gross receipts due to government-mandated COVID-19 restrictions. For Nebraska businesses, comprehending how these criteria apply within their specific sector is crucial.

Nebraska Statewide Orders That May Have Impacted Their Business

Here is a summary of ten significant COVID-19 orders in Nebraska during 2020 and 2021 under Governor Pete Ricketts. This list highlights how these directives impacted businesses, particularly in terms of the Employee Retention Tax Credit (ERTC) Audit.

  • State of Emergency Declaration (March 2020) - Governor Pete Ricketts declared a state of emergency, marking the beginning of statewide efforts to address the pandemic. This declaration was crucial for businesses to begin assessing the pandemic's impact on their operations, forming the basis for ERTC eligibility due to operational disruptions.

  • Directed Health Measures (March 2020)- Initial measures included the closure of non-essential businesses such as bars, restaurants (for dine-in services), and entertainment venues. These closures directly qualified affected businesses for the ERTC by mandating full or partial suspension of their operations.

  • Limitations on Public Gatherings (March 2020)- Restrictions on the size of public gatherings affected many businesses, particularly those in the events and hospitality industries, by limiting customer capacity and directly impacting revenue streams, supporting their claims for the ERTC.
  • Mandate for Remote Work Where Possible (April 2020)- Businesses were encouraged to implement remote work, disrupting traditional business operations. This shift potentially qualified businesses for the ERTC by altering how their operations were conducted, especially for those not typically structured for remote work.
  • Reopening Guidelines (May 2020) - As Nebraska moved to gradually reopen the economy, businesses had to adhere to new operating guidelines including capacity restrictions and health protocols, which could still qualify them for the ERTC due to ongoing partial suspensions and the associated costs.
  • Mask Mandate in Public Indoor Spaces (November 2020)* - With the implementation of a mask mandate in certain jurisdictions, businesses had to enforce new rules and manage public compliance, adding to operational challenges and costs which are relevant for ERTC calculations.
  • Extension of Unemployment Benefits (2020) - The extension of unemployment benefits was a response to the job losses and helped mitigate the impact on workers. For businesses, these extensions impacted their ability to maintain staffing levels, a factor that could influence ERTC eligibility by demonstrating efforts to retain employees.
  • Launch of Small Business Relief Funds (June 2020) - Nebraska allocated funds to support small businesses impacted by COVID-19. While this financial assistance helped, the need for such support underscored the severe impact on businesses, reinforcing their ERTC claims by highlighting financial distress.
  • Vaccination Rollout Impact on Businesses (Starting December 2020) - The initiation of vaccination programs presented new dynamics in business operations, from handling vaccinated/unvaccinated employees to adapting to changing consumer behaviors, which could affect ERTC eligibility.
  • Full Reopening of Businesses (2021) - Even with the full reopening, many businesses continued to face challenges in returning to pre-pandemic levels of operation and revenue. Documenting the ongoing impacts despite reopening is crucial for supporting ERTC claims for periods of significant disruption.

Throughout 2020 and 2021, Governor Pete Ricketts' administration navigated the challenging balance between public health safety and economic activities. For Nebraska businesses preparing for an Employee Retention Tax Credit Audit, it is essential to document how each of these state orders impacted their operations, from direct closures to adaptations required by health guidelines. Detailed records should include timelines of restrictions, specific operational limitations imposed, financial impacts, and efforts to retain employees under challenging conditions. This detailed documentation will be key in demonstrating the necessity of the ERTC during periods of operational disruption and gradual recovery.

Overview of ERTC for Nebraska's Diverse Economy

As the COVID-19 pandemic unfolded, its economic impacts reverberated across Nebraska, with significant effects felt in distinct regions such as Omaha, Lincoln, and the Platte Valley. Each area faced unique challenges based on its industrial and economic landscape, which are crucial for documenting in the context of the Employee Retention Tax Credit (ERTC) and preparing for potential IRS audits.

  • Omaha: Manufacturing and Business Challenges - In Omaha, a pivotal manufacturing and business hub, the pandemic disrupted both supply chains and consumer demand dramatically. The city's diverse manufacturing sector, ranging from food processing to machinery, experienced difficulties in procuring raw materials as global supply chains ground to a halt. Simultaneously, a downturn in consumer spending due to economic uncertainty led to decreased orders, forcing many businesses to scale back production or furlough employees. These disruptions necessitated a swift pivot to alternative suppliers and adjustments in production lines, incurring additional costs and operational complexities. For businesses in Omaha, documenting these disruptions is essential for ERTC claims, as they must illustrate how significant these challenges were to their operations and profitability, evidencing the need for financial relief through the tax credit.
  • Lincoln: Adjustments in Government and Education Sectors - Lincoln, the state's capital and an educational center with several large universities and government institutions, saw considerable shifts in operational dynamics. The transition to remote work for government employees and the shift to online learning for universities disrupted traditional operational frameworks. These entities had to invest in technology and training to facilitate effective remote operations, which significantly altered their financial and operational strategies. Moreover, the postponement or cancellation of public events and university activities led to lost revenue and additional financial strain. For Lincoln's institutions and related businesses, capturing the extent of these shifts in operational requirements is critical. Detailed records of changes, associated costs, and efforts to maintain services are vital for substantiating ERTC eligibility, highlighting the adaptations necessary to continue their roles in public service and education during the pandemic.
  • Platte Valley: Agricultural Volatility - The agricultural sector in the Platte Valley, crucial for both the local and national food supply, faced volatile market demands and continued supply chain interruptions. Farmers and agribusinesses dealt with fluctuating prices and access issues to both markets and inputs, which significantly impacted their operations and financial stability. The unpredictability in demand, especially from commercial buyers like restaurants and schools, compounded the challenges, leading to either surpluses or shortages and resultant financial distress. Documenting these fluctuations is paramount for agricultural businesses in the Platte Valley seeking to claim the ERTC. They need to demonstrate how the pandemic directly affected their market stability and revenue, providing a clear narrative of the financial impacts and operational hurdles encountered.

For businesses across Omaha, Lincoln, and the Platte Valley, effectively documenting the specific impacts of the COVID-19 pandemic is not just about recording losses but about painting a comprehensive picture of the operational adjustments and challenges faced. This documentation will form the foundation of a robust defense strategy for ERTC claims, ensuring that they are well-prepared for any audits and can clearly demonstrate the necessity of the tax credits for their survival and continued operation during the pandemic.

Common Triggers for IRS Audits in Nebraska

Nebraska businesses might face IRS audits due to:

  • Inconsistencies in Financial Reporting: Differences in ERTC claims compared to other tax and financial documentation.
  • Excessive Claim Amounts: Substantial ERTC claims that may seem disproportionate relative to the business size or the economic impact reported.
  • Random Compliance Checks: As part of routine procedures to ensure adherence to tax laws and proper use of tax credits.

Avoiding Common Pitfalls in ERTC Claims

Businesses in Nebraska frequently face several avoidable mistakes when claiming the ERTC:

  • Misunderstanding Eligibility Rules: Incorrect interpretations concerning what qualifies as a significant operational disruption or decline in gross receipts.
  • Inadequate Record-Keeping: Poor maintenance of comprehensive records that validate the continuity of employment and linkage to COVID-19 impacts.
  • Improper Credit Calculations: Errors in calculating the eligible amount due to complex payroll scenarios or misunderstandings of the tax code.

Essential Documentation for Defending Against an ERTC Audit

Building a strong defense in an ERTC audit involves meticulous record-keeping of the following: 

  • Detailed Payroll and Employment Records: These should clearly document the employment numbers and payroll expenses throughout the eligibility period.
  • Financial Statements and Revenue Reports: Must demonstrate the correlation between pandemic-related disruptions and financial outcomes.
  • Compliance Documentation: Evidence of following all relevant government mandates impacting operations, which qualify the business for the ERTC.

Role of Tax Attorneys in ERTC Audit Processes

Tax attorneys are crucial for Nebraska businesses navigating the complexities of ERTC audits by providing:

  • Expert Legal Guidance: Detailed explanations of the tax laws surrounding the ERTC and personalized advice based on specific business scenarios.
  • Audit Preparation Support: Assistance in organizing and reviewing documentation to ensure it comprehensively supports the ERTC claim.
  • Representation During IRS Audits: Skilled negotiation and representation in discussions with the IRS to address any disputes or clarifications effectively.

Proactive Strategies for Audit Preparation

To minimize the risk of an audit and prepare effectively, Colorado businesses should adopt several strategies:

  • Regular Documentation Reviews: Ensuring all documents related to ERTC claims are accurate, complete, and readily accessible.
  • Ongoing Legal and Financial Consultation: Staying updated on any changes to ERTC regulations and IRS auditing practices through regular consultations with tax experts.
  • Internal or Third-Party Audits: Conducting practice audits to identify and address any potential issues before the IRS examines the claims.

Cultivating a Culture of Compliance

Establishing a culture focused on compliance can significantly ease the management of ERTC audits. This involves:

  • Employee Training: Educating staff on the importance of accurate record-keeping and compliance with tax laws.
  • Updating Internal Policies: Regularly revising compliance protocols to reflect the latest tax law changes.
  • Implementing Strong Internal Controls: Ensuring robust oversight of financial reporting and tax filing processes.

Conclusion: Ensuring ERTC Compliance and Readiness in Nebraska

For Nebraska businesses, effectively managing ERTC claims requires more than just understanding eligibility requirements; it demands a comprehensive strategy encompassing meticulous documentation, strategic planning, and proactive audit defenses. By engaging experienced tax attorneys and adhering to rigorous compliance practices, businesses across Nebraska can confidently navigate the complexities of ERTC audits and secure ongoing benefits from this crucial financial support program. 

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Last updated: July 10, 2024

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