IRS Prevents $1 Billion in Improper or Fraudulent Pandemic-Era Tax Credit Claims
The Internal Revenue Service (IRS) has been hard at work preventing the payout of over $1 billion in incorrectly claimed pandemic-era tax credits. In the last six months alone, the IRS has uncovered potentially fraudulent claims amounting to $1 billion, with another $3 billion currently under investigation by its criminal investigations unit. This is a significant achievement for the IRS in protecting tax revenues and combating widespread abuse involving these claims.
One of the main tax credits at the center of this issue is the Employee Retention Credit (ERC). Designed to support businesses that continued paying employees during COVID-19 lockdowns, it has unfortunately become a target for predatory promoters who pushed bad ERC claims onto unsuspecting businesses. This led to a wave of improper claims that threatened the agency’s tax revenues.
To tackle this problem, the IRS imposed a freeze on filing new ERC claims in September 2023. Additionally, they introduced programs to allow businesses that filed incorrect claims to rectify their mistakes with minimal penalties. One such program is the voluntary disclosure program, which enables businesses to come forward and admit their mistakes. In return, they only have to pay back 80% of what they owe, while the remaining 20% is forgiven. This program has already yielded $225 million from over 500 taxpayers, with more submissions still being processed.
Another program introduced by the IRS is the special claim withdrawal process. Businesses that suspect they may have been tricked into filing questionable claims have the option to withdraw them and avoid penalties and interest. Even if a business has received an ERC refund check but hasn’t cashed or deposited it yet, they can still withdraw their claim. So far, this program has led to 1,800 businesses withdrawing $251 million worth of claims.
The IRS has also been actively pursuing unscrupulous promoters who used aggressive marketing techniques to lure businesses into making improper claims. To qualify for these programs, businesses must provide the IRS with information about any advisers or tax preparers who assisted with their claims. This helps the IRS identify and take action against those who facilitated these fraudulent activities.
While the IRS has made significant progress in preventing improper claims, there is still more work to be done. The criminal investigations unit is currently reviewing an additional $3 billion in potentially fraudulent or otherwise improper claims. The agency has already sent over 12,000 letters demanding a return of incorrectly claimed funds, along with penalties and interest dating back to when the ERC was paid out.
The deadline for making submissions under the voluntary disclosure program was March 22. However, the IRS has stated that it may reopen the program in the future, pending Congressional action to extend the statute of limitations for ERC claims. This shows that the IRS is committed to addressing the larger issue of erroneous claims and will continue working on a wide range of ERC issues.
The withdrawal program remains open beyond March 22, allowing businesses with unprocessed bad ERC claims to still have the option to withdraw them. This gives businesses an opportunity to rectify their mistakes and avoid potential penalties and interest.
Overall, the IRS’s efforts to prevent improper or fraudulent pandemic-era tax credit claims have been commendable. By implementing freezes, introducing programs for voluntary disclosure and claim withdrawal, and actively pursuing unscrupulous promoters, the IRS has protected over $1 billion in revenue. However, there is still a long road ahead in combating widespread abuse and ensuring that small businesses are not harmed by fraudulent claims. The IRS will continue to closely monitor discussions in Congress regarding the ERC and work towards extending critical tools to protect against improper claims.
