ERC Scam: IRS Takes Action to Recover Funds and Prevent Future Fraud

IRS retrieves funds awarded to businesses through fraudulent COVID-era tax credit program

The Employee Retention Credit (ERC) was introduced by the government to aid businesses during pandemic-related shutdowns. However, due to its complex eligibility rules, it was exploited by scammers. In response, the IRS launched initiatives to recover funds that were improperly distributed under the ERC.

Small businesses were given the opportunity to participate in a voluntary disclosure program that ended on March 22. Over 500 taxpayers returned $225 million in error and kept 20% of it as a reward for their honesty. An additional 800 submissions are still being processed, and an ongoing program has led to 1,800 businesses withdrawing $251 million in unprocessed claims.

The IRS also conducted audits of over 12,000 businesses with over 22,000 improper claims. As a result of these audits, assessments of $572 million were made. This helped expose widespread abuse of the ERC that harmed many small businesses. IRS Commissioner Danny Werfel expressed concern about this issue but also stated that the results of these initiatives have been promising in helping misled businesses.

The IRS had stopped processing new claims in September but plans to resume processing in the spring. At the same time, $3 billion in claims are currently under review by IRS Criminal Investigation as part of efforts to address fraud and abuse related to the ERC.

In conclusion, while there have been some positive results from the IRS’s initiatives to recover funds improperly distributed under the ERC, there is still much work to be done to prevent future instances of fraud and abuse related to this credit program.

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