AI for Employee Retention Credit Documentation and Substantiation

ERC Documentation Is Under Scrutiny

The Employee Retention Credit became one of the most claimed and most scrutinized tax credits in recent history. The IRS is actively auditing ERC claims, and the documentation requirements are substantial. Many businesses claimed the credit based on promoter advice without building the supporting files needed to survive an audit.

What Documentation Is Needed

Government orders that caused full or partial suspension of operations, with specific identification of which operations were affected and how. Gross receipts calculations showing the required decline for the applicable quarters. Qualified wage calculations including the health plan expense allocation. Large employer versus small employer determination affecting which wages qualify.

How AI Assists

AI can analyze government orders and map them to the client specific operations to determine which quarters qualify under the suspension test. It can calculate gross receipts from the accounting records and compare against the applicable thresholds. It can compute qualified wages ensuring proper application of the caps and limitations.

The Current Landscape

For firms helping clients who already claimed ERC, the work is about building the documentation file that supports the claim. For clients who claimed based on questionable advice, it may involve evaluating whether the claim is defensible and potentially withdrawing it through the IRS voluntary disclosure program.

For more, visit FirmAdapt accounting and tax industry page.