IRS Suspends Pandemic-Era Tax Credit Claims Amid Fraud Concerns.The Internal Revenue Service (IRS) has taken the unprecedented step of suspending the acceptance of claims for the pandemic-era tax credit, known as the Employee Retention Credit (ERC), until the year 2024. This decision comes in response to mounting apprehensions surrounding a surge in fraudulent applications.
Understanding the Employee Retention Credit (ERC)
The ERC was initially established to provide support to small businesses, enabling them to continue paying their employees during the peak of the pandemic, especially if their operations were fully or partially suspended. Although this credit officially concluded on October 1, 2021, businesses retained the opportunity to apply retroactively by amending their payroll tax returns.
Rising Concerns Over Fraudulent Claims
The IRS has observed a growing number of questionable claims emerging from small businesses, some of which may be unaware of their ineligibility for the ERC. Given the intricate eligibility criteria associated with this credit, it swiftly attracted scammers who targeted unsuspecting small businesses, offering assistance with ERC applications for a fee, even when eligibility was uncertain. Notably, the ERC is exclusively available to businesses and is not accessible to individuals.
IRS Commissioner Danny Werfel expressed deep concern, stating, “The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in. The further we get from the pandemic, the further we see the good intentions of this important program abused.”
IRS Takes Action Against Fraud
During the duration of the ERC program, the IRS received a staggering 3.6 million claims for the credit. Beginning in July, the IRS intensified scrutiny of these claims, resulting in the initiation of hundreds of criminal cases and the referral of thousands of ERC claims for audit.
As a consequence of heightened scrutiny, the processing time for previously submitted claims will increase from 90 days to 180 days, with even longer delays if a claim necessitates a review or audit. To address the concerns of honest small businesses, the IRS is introducing a mechanism for them to withdraw their claims if they no longer believe they meet the eligibility criteria. Presently, approximately 600,000 claims remain pending.
Pandemic-Era Programs Vulnerable to Fraud
It’s important to note that government programs aimed at assisting small businesses during the pandemic have consistently been targeted by fraudsters. Suspicions have arisen that as much as $200 billion may have been fraudulently obtained from two other pandemic-era programs, namely the Paycheck Protection Program and the COVID-19 Economic Injury Disaster Loan program.
For small business owners seeking to confirm their eligibility for the ERC, resources are available on the IRS website, including an eligibility checklist.