IRS Documentation

An eligible employer will adequately substantiate eligibility for the employee retention credit if the employer creates and maintains records that include the following information:

• Documentation to show how the employer determined it was an eligible employer that paid qualified wages, including:
  • any governmental order to suspend the employer’s business operations;
  • any records the employer relied upon to determine whether more than a nominal portion of its operations were suspended due to a governmental order or whether a governmental order had more than a nominal effect on its business operations;
  • any records the employer used to determine it had experienced a significant decline in gross receipts;
  • any records of which employees received qualified wages and in what amounts; and
  • in the case of a large eligible employer, work records and documentation showing that wages were paid for time an employee was not providing services.
• Documentation to show how the employer determined the amount of allocable qualified health plan expenses.
• Documentation related to the determination of whether the employer is a member of an aggregated group treated as a single employer for purposes of the employee retention credit and, if so, how the aggregation affects the determination and allocation of the credit.
• Copies of any completed Forms 7200 that the employer submitted to the IRS.
• Copies of the completed federal employment tax returns that the employer submitted to the IRS (or, for employers that use third-party payers to meet their employment tax obligations, records of information provided to the third-party payer regarding the employer’s entitlement to the credit claimed on the federal employment tax return).

An eligible employer should keep all records of employment taxes for at least 5 years after the date the tax becomes due or is paid, whichever comes later. These should be available for IRS review.

Caution.  Best practice is to maintain all records of employment taxes for at least 7 years.  This will serve to protect you in the event that the IRS seeks to claim that you filed a false or fraudulent return.  Should such a claim be made, there is no statute of limitations.

Generally, the IRS has three years from the date a return is filed to assess additional tax.

For the third quarter of 2021, a special five-year statute of limitations applies instead of the general three-year rule. See IRC §3134(l)[SS5].

Furthermore, given the IRS’ warning, there is no time limit for the IRS to assess in the case of a false or fraudulent return filed with the intent to evade tax. See IRC §6501(c)(1)–(2).[SS6].