80% of ERC Claims are Flagged as Improper: What CPAs Must Do Now

The deadline for filing 2021 ERC claims has now passed, and the statistics are alarming. An astounding 80-90% of Employee Retention Credit (ERC) claims are being flagged as improper by the IRS.

For CPAs, 2025 represents a critical juncture. The IRS is entering a new and more aggressive phase of enforcement.

If you are handling ERC claims, the odds are not exactly in your favor. You need to make sure your claim can withstand IRS scrutiny.

The window for proactive remediation is rapidly closing. This blog uncovers a middle way out that can help you strategize for your next big move.

Here's what you need to know about current enforcement trends, how to identify red flags in existing claims, and the protective strategies that are now essential for professional survival.

What This Means for Your Practice 

You have extensive experience, but do you know that feeling when you see an audit notice in your mailbox? With the IRS gearing up to hasten the process, you will be getting multiple audit notices during your busy season. This is exactly what is happening to CPA firms across the country right now.

IRS data shows that between 10 and 20% of ERC claims show no risk.  Let us add one more layer of complexity – the IRS is not using the same old slow-moving audit process.  They have enhanced technology, substantial funding, and they have specifically trained their auditors to identify ERC issues. This is not your typical audit scenario.

Let’s Talk About Capacity for A Second 

You are walking into your office on a Monday morning, and there are three ERC audit notices awaiting you – from three different clients – all needing immediate attention.

How do you handle this? Do you:

This situation is not hypothetical anymore; it is happening to firms like yours. Dealing with ERC audits requires detailed documentation as well, which becomes the major task for your team.

The Documentation Reality Check 

The documentation requirements for an ERC audit are very intricate. Think about a typical client file. Now multiply that by about ten. For each ERC audit, you need to organize and present:

You love number crunching, which brings you to the field of accounting. But digging down past records and reconstructing those files is a difficult task altogether.

What's Your ERC Audit Support 2025 Strategy? 

You already know that the IRS has made substantial progress this year. By July 2025, 99% of claims were three months old. The backlog is clear and now they are coming for questionable claims.

So, it basically implies that all your clients who received ERC funds are not in the processing queue anymore; they are in an audit pipeline.

The Cost Analysis of an ERC Audit 

You are calculating the numbers, right? Suppose you charge your clients $150-250 per hour for a senior employee. Now, assuming each ERC audit takes about 40+ hours of specialized work, you need to spend $6,000-$10,000 per audit in staff time.

You also need to think about the other things – critical deadlines, accurate documentation, unfamiliarity with the ERC audit procedures – all this will add up to the intricacies.

In this scenario, your client is not just facing credit recapture. They are looking at penalties and interest that could devastate their businesses.

Why are Forward-Thinking CPA Firms Choosing ERC Audit Assistance? 

During this time of rushed work, many CPAs are trying to tackle the situation in a different way. They are partnering with firms that live and breathe compliance and have a deep understanding of ERC audits.

Here is a “this or that” scenario – would you rather let your senior asset learn ERC audit procedures over the weekend or work with specialists who already know exactly what the IRS is looking for?

When you implement proper ERC audit assistance for CPA firms, you're not losing control of your client relationships. You're actually protecting them. Your clients still see you as their trusted advisor, but now you're backed by specialists who can deliver expert-level results.

What Difference Does Outsourced ERC Documentation Make? 

All this brings you to one solution – outsourcing ERC audits and documentation process. Here is what it actually means for your CPA firm. Instead of rushing all your resources towards organizing complex audit files during your busiest season, you gain access to resources who can:

The biggest difference it makes is – your relationship with the client. Additionally, you can focus on your business, align all your resources towards regular core activities, while the experts concentrate on navigating the audit maze. It is clearly a win-win situation.

The 2025 IRS Audit Surge Reality 

Let’s look at the real picture – by 2026, large corporations could face three times as many audits as they did in previous years. The audit rate is expected to reach 22.6%, up from 8.8% in 2019. But here is the thing, the ERC audit wavy has hit the shore.

As the 2025 audit surge comes to life, you need to make the decision. Are you going to try and handle this surge with your existing resources, or are you going to position yourself strategically with the right partners?

Your IRS ERC Audit Help Options 

You are well aware of your situation, so let us directly look at all the practical options at hand when the audit notice arrives:

Option 1: Handle it internally

Assign your best staff to learn ERC audit procedures while managing their regular workload. Try to maintain a schedule that doesn’t let the work suffer.

Option 2: Refer the client elsewhere 

This is an option; you are a part of a network where CPA firms are easily accessible. However, there is a risk of losing your trusted clients. The hard work you put into building relationships might be at stake. 

Option 3: Partner with Specialists 

Developing a strategic collaboration where experts provide comprehensive IRS ERC audit help while you maintain the client relationship is a viable option. 

While all three options are at your disposal, you need to decide with a farsighted vision for your company. As the ERC audit storm settles, your clients and resources need to go back to your regular business. 

However, if the third option seems appealing to you, let’s dive further into it. 

The Strategic Partnership Approach 

Here's what accounting outsourcing for ERC compliance should look like in practice. You don't need to become an ERC audit specialist. You need to partner with one. 

The right partnership gives you: 

When you outsource audit prep for ERC claims, you're not admitting weakness. You're demonstrating strategic thinking. You're showing your clients that you care enough about their success to bring in the best possible support. 

The Proactive Approach to ERC Eligibility and Documentation 

The age old saying goes “Prevention is better than cure.” It should be tweaked to “Proactive approach is better than escalating issues!” 

You might have already implemented a proactive approach by reviewing your clients’ ERC claims and preparing comprehensive audit files before the IRS comes knocking.

This proactive approach involves systematic review of all ERC claims for potential issues, pre-audit documentation organization, risk assessment and mitigation planning, and clear client communication about potential audit scenarios.

This approach enables you to position yourself as a robust, forward-thinking partner that your clients can rely on – especially in uncertain times like these.

Your Decision Point 

This is a new landscape, a turning point where you need to balance all three fronts – your client relationship, effective resource planning with a focus on your regular activities, and efficient management of ERC audits.

The 2025 ERC audit surge is not a threat, but it is an opportunity for you to demonstrate your value by ensuring your clients have the best possible support.

Your clients are counting on you, you need to make the next move – Do it yourself, refer to another CPA firm, or strategically outsource. The choice is yours.