The Employee Retention Credit (ERC), available for 2020 and most of 2021, has been a significant opportunity for nonprofit organizations to offset the financial impact of COVID-19. Organizations that met the eligibility criteria could have benefited from a credit of up to $26,000 per employee. Many nonprofit organizations were able to claim the credit as an eligible employer by either meeting the gross receipts decline qualification or experiencing a full or partial suspension of operations due to a COVID-19-related government order limiting commerce, travel, or group meetings.
Guidance issued by the IRS and ongoing audits have provided a deeper understanding of the IRS’ interpretation of which are relevant government orders and who could be eligible. Due to significant abuse of the ERC program by third-party providers promoting aggressive refund claims, the IRS has increased scrutiny, as noted in IR-2023-230. If your organization claimed an ERC refund but you are concerned you do not have sufficient documentation to support it under audit, FORVIS can help you evaluate your claim and advise how it can be strengthened. If you no longer believe you are an eligible employer for the ERC, the IRS also has a withdrawal option and ERC Voluntary Disclosure Program. Please reach out to your engagement team at FORVIS for help in understanding what options are available to you.
ERC Audits
In July 2023, the IRS announced it had made substantial progress in processing more than 2.5 million ERC claims since the program was enacted, with 99% of claims being approximately three months old at the time. While the moratorium on new ERC filings announced September 14, 2023 (IR-2023-169) has significantly slowed the refund process, it has allowed the IRS time to implement new protocols in the ERC approval process and to focus on training IRS auditors in examining ERC claims that pose the greatest risk.
The IRS criminal investigation division also is working to identify fraud and promoters of fraudulent claims. In addition to increased audit activity, the IRS has started sending letters to some ERC applicants requesting documentation as to why they are eligible employers for the ERC, with a required response time of 30 days. If the taxpayer does not respond within the 30-day window, the IRS will deny their ERC refund claim, so it is imperative to respond in a timely manner. FORVIS has a tax controversy team with significant experience in handling these IRS requests, so please reach out to your engagement team at FORVIS for help with these IRS matters.