IRS Freezes Pandemic-Era Tax Credit Claims Over Widespread Fraud Concerns

The Internal Revenue Service has reviewed approximately one million claims for COVID-19 pandemic-era Employee Retention Credit (ERC) tax breaks totaling $86 billion, stating that the “vast majority” are at risk of being improper.

Congress created the program during the COVID-19 pandemic to encourage businesses to retain employees, but it soon became a target for fraudulent activity.

Demand for the credit surged as Congress expanded the tax break, making it accessible to additional companies. Aggressive marketers promised significant refunds to business owners if they simply applied, according to AP News.

Complex eligibility requirements reportedly enabled scammers to offer small businesses assistance in applying for the ERC in exchange for fees, despite the businesses having little to no chance of qualifying.

The IRS has indicated that between 10 percent and 20 percent of the one million claims exhibit “clear signs of being erroneous,” and tens of thousands of these claims will be denied in the coming weeks.

Another 60 percent to 70 percent of claims show an “unacceptable risk” of being improper and will undergo further evaluation.

“The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims,” IRS Commissioner Danny Werfel stated.

“We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims,” he added.

The IRS halted the processing of new claims in September. According to the AP report, the moratorium on ERC claims submitted after September 14, 2023, will remain in place.

Businesses have the option to initiate the claim withdrawal process with the IRS if they wish to request an ERC claim or any tax period that hasn’t been paid yet.

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By Hunter Fielding
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