6612 Letter (What It Is & How to Prepare for an Audit)

In particular, a 6612 letter is a formal notice to the business that it is being audited for its Employee Retention Credit (ERC). The following guide looks at what you can expect from a 6612 Letter, what it means, why you have received it, and how to best respond to the situation. 
Written by
Jozef Lewitsky
Published on
July 10, 2024

An unexpected letter from the IRS can turn many business owners pale, but it doesn’t have to. 

Among the notices the IRS can give, a 6612 letter has been a common one in recent years, as it’s related to businesses trying to navigate the pandemic years.

In particular, a 6612 letter is a formal notice to the business that it is being audited for its Employee Retention Credit (ERC). 

The following guide looks at what you can expect from a 6612 Letter, what it means, why you have received it, and how to best respond to the situation. 

What Is A 6612 Letter?

The IRS sends a 6612 letter to notify businesses they are receiving an ERC audit. It is not a warning letter, but a notice of an incoming substantial inquiry into the business’s ERC claims. 

Once a business receives the letter, it can expect the formal audit process to begin shortly to verify its ERC claims' accuracy. 

The 6612 letter will provide information about what the IRS has found questionable that has prompted the inquiry. 

Understanding Your 6612 Letter

Receiving a 6612 letter can feel intimidating. However, as long as you’re cooperative (and haven’t deliberately falsified your ERC claim), paying back your tax credit with penalties is the worst that can happen.

Importantly, receiving an ERC Audit Notice doesn’t imply your business has committed wrongdoing. Rather, the IRS has simply flagged your business for investigation.

Reasons Why You Might Be Receiving The Letter

Your chances of receiving an IRS 6612 letter can increase due to any of the following 3 reasons:

  1. Discrepancies in your ERC claim: If the information provided in your claim does not align with other financial information the IRS has on file, this can trigger an audit. 
  2. Incomplete documentation: Submitting an ERC claim without all the required documentation or with incomplete information can flag your application for review.
  3. Substantial differences from previous or other businesses’ claims: Your claim differs significantly from previous years’ claims or from other businesses’ claims in the same year and industry.

What You Need To Do Now

Once you receive ERC Form 6612, here’s what you can do immediately:

  1. Read the letter in detail. It explains the specific red flags the IRS has found.
  2. Review your ERC claim. Now that you know the problem, you can review your original ERC claim and see where things have gone wrong. 
  3. Prepare your team. Ensure that your team is prepared to cooperate with the incoming auditors. 

How To Prepare For An ERC Audit

Prepare for ERC Audit

An ERC audit by the IRS is best met with a strategic, thorough approach. Here’s how to prepare:

1. Gather Your Documents

The following documents form a non-exhaustive list of documents needed for an ERC audit: 

  • Payroll Documentation: Comprehensive logs of employee compensation, including all relevant tax documentation (e.g., Form 941).
  • Financial Reports: Profit and loss, financial position, and cash flow statements.
  • Employee Records: Employment records, role specifications, and proof of employee qualification.
  • ERC Support Files: Total revenue, permissible costs, and eligible salaries.
  • Corporate Records: Founding documents, operating licenses, and important agreements.
  • Mandate Compliance: Records of compulsory closures or notable operational downturns caused by government orders during the pandemic.
  • Additional Proof: Any supplementary files that corroborate the legitimacy of your ERC claims.

2. Consult With A Tax Planning Team

Due to the complexity and newness of ERC audits, most businesses would benefit from professional guidance. 

A tax planning team or a qualified tax advisor can provide strategic advice on navigating each stage of an ERC audit.

3. Consider Filing An Appeal

You may eventually want to appeal the results of your ERC audit. While an appeal is traditionally considered after an audit's conclusion, you can prepare for it in advance

However, appealing can be complicated. That’s why engaging a tax attorney early can reduce your risk of needing to appeal.

How Long Does An IRS ERC Audit Take?

A standard IRS ERC audit takes between 2 months and 1 year.

This wide range is due to differences in a claim's complexity, the documentation's completeness, and various other factors.

Generally, an audit is conducted according to the following steps:

  1. Initial review: The IRS will first thoroughly examine your financial documents. This process will typically take a few weeks to up to three (3) months.
  2. In-depth investigation: Once the IRS has uncovered its specific areas of concern, it will ask you for further clarification and additional documentation. Depending on what they’ve found and the speed of replies, this can increase the length of the audit.
  3. Resolution: The IRS will then make a decision regarding your ERC claim, which you can dispute or appeal. 

Frequently Asked Questions

How Does The IRS Determine Who Receives A 6612 Letter?

The IRS uses an internal risk assessment model and random chance to decide who receives a 6612 letter.

These 3 criteria determine what increases the chances of an ERC audit:

  1. Discrepancies: The IRS looks for inconsistencies between the information provided in your ERC claim and other data they have on file.
  2. Incomplete information: Beyond inconsistencies, the IRS is looking for any missing information that may be hiding something. 
  3. Substantial differences from other returns: The IRS will also flag a tax claim if it is substantially different from previous returns from the same business or from the returns of other businesses in the same year in the same industry.

What Are The Potential Consequences Of Not Responding To A 6612 Letter?

Ignoring a 6612 letter can have serious repercussions. Failure to respond can result in:

  • Penalties: Different financial penalties can apply, significantly increasing the amount you owe to the IRS.
  • Interest: In addition to penalties, interest on unpaid amounts may be charged.
  • Revocation: In severe cases, non-response can lead to the IRS rescinding your ERC claim entirely, requiring you to repay the full amount, along with any penalties and interest.

How Can Businesses Request an Extension for Responding to Form 6612?

A business can request an extension if it needs more time to gather the necessary documentation or to consult a tax advisor. Here’s how:

  • Contact the IRS directly: Use the contact number provided in your 6612 letter and explain your situation.
  • Provide valid reasons: This includes needing additional time to gather comprehensive documentation, waiting on third-party information, or unforeseen circumstances.
  • Propose a New Timeline: When asking for an extension, it’s best to provide the IRS with a specific and reasonable timeline.

The Fastest Way To Fix Your 6612 Audit - What Now?

You can do nothing to ‘fix’ an audit, but you can prepare by gathering all your documentation, consulting with tax professionals, and keeping your correspondence to the IRS prompt

If you’re finding the process overwhelming, your best bet is to speak to a tax planning team or licensed tax attorney like those at RevenueSafe. They’ll be able to address all your issues quickly and effectively.

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