Employee Retention Credit: Letter 6612 and Your ERC Claim

While initially designed to aid businesses during the COVID-19 pandemic, the Employee Retention Credit (“ERC”), has encountered significant challenges as the IRS grappled with an overwhelming influx of claims, fraudulent activities, and resource constraints. Numerous ERC claims have been flagged as erroneous or fraudulent, prompting intensified audits and investigations. The IRS is now sending Letter 6612 to notify taxpayers of an impending ERC audit. It is crucial for taxpayers to respond thoroughly to Letter 6612 and to act promptly to ensure the preservation of their ERC claim and avoid potential penalties. The letter will include a deadline to respond, often allowing only a few weeks to provide a thorough response.

IRS Letter 6612, an Information Document Request (“IDR”), is a notice sent by the IRS to inform taxpayers of an audit of their tax return reporting an adjustment or claim for refund related to the ERC. The letter requests documentation to verify the claimed ERC and states that the credit will be held until the audit is resolved. 

The IRS provides additional guidance regarding what to do if you receive Letter 6612, including the following directions:

• Provide copies of the documentation we request to verify the items we're auditing.

• Provide the requested response and supporting documents you are submitting either by:

• Uploading your documents to the website provided in the letter (if applicable), or

• Faxing your documents to the fax number in the letter (if applicable), or

• Mailing your response to the address shown on the letter.

Recipients are instructed to carefully review the letter and enclosed forms, provide requested documentation to verify audited items, and submit their response and supporting documents either through an online portal, fax, or mail. Additionally, recipients are encouraged to review the letter with a tax professional, ensure eligibility and correct calculation of the ERC, and seek assistance from the IRS if needed. In response to the rise in fraudulent activities and incorrect claims, the IRS recently highlighted some warning signs of potentially incorrect ERC claims in a recent memo. 

Note that if a taxpayer utilized a Professional Employer Organization ("PEO"), then the PEO will receive the letter instead of the taxpayer; the PEO may then require the taxpayer to provide the additional IDR documentation with minimal notice or the PEO may have to forgo the portion of the claim related to the taxpayer who failed to respond to the PEO timely for the PEO to pass along the documentation to the IRS.

If you receive Letter 6612, it is imperative that you contact your tax return preparer immediately; failure to respond in a timely manner may result in partial or total loss of your employee tax credit claim. Probity Tax Recovery can help you navigate the ERC audit process. You can contact Probity Tax Recovery at our website or by contacting our consultants at 1-866-647-3920.