Enforcement, voluntary programs yield over $1 billion from ERC claims

Enforcement, voluntary programs yield over $1 billion from ERC claims

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The IRS has identified about $1 billion in potential savings due to erroneous employee retention credit (ERC) claims, with more than half of that money coming from law enforcement efforts and the rest from the ERC. voluntary disclosure program (VDP) and claim withdrawal processofficials said Friday.

About 12,000 entities filed more than 22,000 improper claims, resulting in $572 million in assessments, the IRS said in a statement. a press release about the ERC in the era of the pandemic.

Additionally, the VDP has raised more than $225 million from more than 500 contributors, with another 800 filings still in process and more filed just before Friday's deadline. And 1,800 entities have withdrawn $251 million in claims through the claim withdrawal process for those with unprocessed ERC presentations.

“We are encouraged by the results so far of our initiatives designed to help deceived businesses, and the IRS will continue our broader enforcement work, given the aggressive marketing we have seen with this credit,” said IRS Commissioner Danny Werfel, in the statement.

Meanwhile, IRS Criminal Investigation (CI) is investigating another $3 billion in claims, the agency said.

The numbers, which are accurate as of March 15, will grow as additional voluntary disclosures are processed, additional claims are withdrawn and additional compliance work is completed, the IRS said.

The ERC was designed to allow certain businesses to continue paying their employees during the COVID-19 pandemic while their operations were fully or partially suspended due to a government order or had a significant decrease in gross receipts during eligibility periods. It was generally available to eligible businesses from March 31, 2020, through September 30, 2021, and through December 31, 2021, for recovering startups.

On September 14, 2023, the IRS announced a moratorium on processing new claims. A specific resumption date has not been determined, but it could be late spring, the IRS said in its news release. The IRS has paid out more than $1 billion in claims since the moratorium began, IRS officials said.

Voluntary disclosure program

Under the VDP, companies that received money from the ERC until December 21, 2023 could agree to a refund of the incorrect ERC, less a 20% discount, during any tax period in which they were not eligible for the ERC. The deadline to submit the VDP was Friday, March 22.

The IRS could reopen the program if Congress agrees to extend the statute of limitations for ERC claims, as the Treasury has proposed, according to the statement. The statute of limitations for claims processed for fiscal year 2020 will expire on April 15. However, compliance activities regarding tax year 2021 ERC claims will continue, the IRS said.

US Treasury Undersecretary Wally Adeyemo called on Congress to help the IRS by extending the statute of limitations.

“While the IRS has worked diligently to recover billions of dollars and law enforcement efforts continue, Congress must act to protect the interests of American taxpayers and honest small businesses and give the IRS the tools it needs to address fraud,” he said in a statement.

If the VDP reopens at a future date, conditions will be no better than the current program.

Special retirement program

The IRS has more than 1 million unprocessed ERC claims that employers can withdraw if they believe the claim was improper. Taxpayers who received an ERC check but did not cash or deposit it can also use this process to withdraw the claim and return the check. The IRS will treat the claim as if the taxpayer never filed it. No interest or penalties will be applied.

Execution actions

The IRS has sent more than 12,000 letters to entities, recovering the ERC claim that was previously paid. These companies will owe 100% of the ERC paid to them, plus penalties and interest dating back to the date the ERC was paid.

This initial round of letters covers fiscal year 2020. More letters are planned to address fiscal year 2021, which involved larger claims. Congress increased the maximum ERC from $5,000 per employee per year in 2020 to $7,000 per employee for each quarter of the year in 2021.

Additionally, thousands of ERC claims are under audit. And as of February 29, CI has filed more than 380 criminal cases with claims worth nearly $3 billion. Twenty-five investigations have resulted in federal charges, with 12 convictions and six sentences, with an average sentence of 24 months.

Meanwhile, the IRS continues to collect information on suspected abusive ERC tax promoters and preparers and has received hundreds of referrals from internal and external sources. Criminal and civil law enforcement efforts continue, the IRS said.

Learn more about ERC eligibility

The AICPA has ERC Resources and information for members so they can warn customers about red flags that could indicate a supplier is dishonest and discourage dealings with ERC factories.

The IRS frequently asked questions about the ERC include links to additional resources. The IRS has a ERC Interactive Eligibility Checklist use to check possible eligibility for the ERC. Also available as printable guide.

— To comment on this article or suggest an idea for another article, contact Martha Wagoner at Martha.Waggoner@aicpa-cima.com.


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