Claiming the Employee Retention Credit (ERC), Research & Development (R&D) Credit, and the Work Opportunity Tax Credit (WOTC) involves far more than just crunching numbers. Small and mid-sized business owners must navigate a complex web of qualification guidelines, including showing proof of qualified wages, partial suspension, employer size status, payroll records, qualifying expenses, and much more. These gray areas all contribute to the high potential for compliance issues and potential audits.
In this blog, we’re uncovering:
Compliance is when a taxpayer is adhering to recordkeeping and abiding by information reporting requirements. It means submitting required documentation within a stipulated period. This could include a chart of accounts, employee form W-2s, payroll registers, invoices, receipts, service contracts, or additional paperwork.
In short, compliance means wholly fulfilling all Internal Revenue Service obligations as specified by the law.
Staying compliant with the IRS is critical for small and mid-sized business owners. By adhering to compliance regulations, taxpayers can ensure that their tax credit file requests and expected reports are in proper order, processes are abided by the IRS, and laws are adhered to.
The goal behind the program was to incentivize businesses to hire and retain employees who had previously had difficulty finding or keeping employment due to certain circumstances.
On the flip side, if business owners do not concern themselves with compliance, they could open themselves up to many consequences, including unfavorable results from an audit. The IRS defines an audit as “a review/examination of an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.”
If your business gets caught up in an audit, you’ll probably be wondering: How long does an audit take? How far back can the IRS audit a small business? What are my rights? While there’s no substitute for meeting with a qualified tax attorney, you can find some answers about audits on this IRS page.
Further consequences could also include:
With President Biden’s recent signing of the Inflationary Reduction Act (IRA, H.R. 5376, as passed by the Senate on August 7, 2022), more eyes than ever will be on small and mid-sized business tax compliance with the IRS.
Specifically, Part 3 of Title I, Subtitle A of the Inflation Reduction Act would assign to the IRS and related agencies $79.6 billion to remain available through FY2031. The bill intends for this new spending to be added to the IRS’s current annual appropriations. The overall idea behind this bill section is to help improve tax compliance, which could bring in an estimated $203 billion in increased revenue.
Eighty-seven thousand new IRS agents are expected to be onboarded with the intent to locate and pursue auditing issues for commonplace taxpayers in the coming years; This means that there will surely be a jump in the number of IRS tax audits for small and mid-sized businesses. This massive change will likely magnify any compliance discrepancy that could cause concern for businesses running under the radar.
IRS Commissioner Chuck Rettig recently wrote a memo to his employees: “These changes will not be immediate… It’s a 10-year plan, and it will take time to put these provisions into place.” But for business owners, ensuring compliance is essential now more than ever. You’ll want to avoid getting caught up in the sea of audits projected as early as 2026.
There are many providers for corporations that help businesses file for tax credits, but few that utilize the power of dynamic technology to prioritize compliance. At Stenson Tammaddon, our approach to tax credit filing prioritizes compliance, making the customer service best in class. Our white-glove path to your success provides you with a 1:1 relationship with a tax credit specialist, the ability to have your documents filed for you, and the opportunity to engage with third-party legal and tax resources to continue to support your business needs.
Our method for filing tax credits – how we engage with clients, collect and review documents, and complete filings – both manually and leveraging proprietary and out-of-the-box technology, supports the requirements of a business to stay within the perimeter of proper, compliant standards and expectations.
