The IRS has sent more than 20,000 letters notifying taxpayers that their requests for a tax break during the pandemic have been denied, and the agency will be seeking repayment.
The IRS has alerted taxpayers that, as part of its effort to crack down on questionable claims for pandemic-era tax credits, the agency will be mailing letters instructing taxpayers to return funds that were “erroneously claimed and received.”
The most recent warning from the IRS, released on December 6, concerns a surge in improper claims for the pandemic-era relief initiative called the Employee Retention Credit (ERC). This refundable tax credit is intended for businesses that sustained employee payments amid COVID-19 shutdowns.
A large number of improper ERC claims were pushed by predatory promoters on unwitting businesses, with an investigation by the IRS Criminal Investigation (IRS-CI) division uncovering over $2.8 billion of potentially fraudulent ERC claims.
The surge in improper Employee Retention Credit (ERC) claims led the IRS to declare a moratorium on processing new ERC claims in mid-September. At that time, the agency stated it had referred thousands of ERC cases for audit.
Not only that, but the IRS said that it was undertaking “enhanced compliance reviews” of existing claims made prior to the moratorium.
Those enforcement actions have now come home to roost, with the IRS putting taxpayers on notice that 20,000 letters have been sent telling them that their ERC claims have been disallowed.
The 20,000 letters are just the first step, however, with the IRS telling taxpayers that another round of notifications is coming—this one demanding a return of funds wrongly claimed and received.
“With the aggressive marketing we saw with this credit, it’s not surprising that we’re seeing claims that clearly fall outside of the legal requirements,” IRS Commissioner Danny Werfel said in a statement.
“The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received,” he added.
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