The Internal Revenue Service (IRS) announced that a review of 1 million claims for the Employee Retention Credit (ERC) totaling $86 billion revealed that the majority of these claims are at risk of being improper. The ERC was created to assist businesses in retaining employees during pandemic-related closures, but it ended up being targeted by fraudsters due to its complex eligibility criteria. Scammers took advantage of small businesses by offering to help them apply for the credit for a fee, even if they did not qualify. About 10% to 20% of the claims are considered to be clearly erroneous and will be denied in the coming weeks, while another 60% to 70% are at an unacceptable risk of being improper and will undergo further evaluation.
IRS Commissioner Danny Werfel stated that this review has uncovered widespread concerns about improper claims for the ERC. The IRS will use this information to deny billions of dollars in clearly improper claims and will also begin issuing payments to taxpayers who have legitimate claims without any red flags. Approximately 10% to 20% of the claims are categorized as low risk, and the IRS will start processing payments for this group later in the summer. The IRS had stopped processing new claims for the ERC in September and announced that this moratorium will continue for claims submitted after September 14, 2023.
Businesses that have submitted ERC claims and wish to withdraw them for any tax period that has not been paid yet can follow the claim withdrawal process outlined by the IRS. The agency has provided guidance on how to request the withdrawal of an ERC claim to prevent the processing of fraudulent or improper claims. The IRS has taken steps to address the issue of fraudulent claims for the ERC and will continue to monitor and evaluate claims to ensure that only eligible businesses receive the credit. By denying improper claims and issuing payments to those with legitimate claims, the IRS aims to safeguard the integrity of the program and prevent further fraud in the future.
