NEW YORK (AP) — The Internal Revenue Service said Thursday that a review of 1 million claims for the $86 billion Employee Retention Credit shows the “vast majority” are at risk of being improper.
The ERC was designed to help companies retain employees during shutdowns during the pandemic, but quickly became a magnet for fraud. The complex eligibility rules allowed scammers to target small businesses and offer assistance in applying for the ERC for a fee – even if they did not qualify.
About 10% to 20% of the 1 million claims show “obvious signs of inaccuracy” and tens of thousands of those will be denied in the coming weeks, the IRS said. Another 60% to 70% show an “unacceptable risk” of being inappropriate and will be further evaluated.
“The completion of this review provided the IRS with new insight into high-risk employee retention credit activities and confirmed widespread concerns about a large number of improper claims,” said IRS Commissioner Danny Werfel. “We will now use this information to deny billions of dollars in clearly inappropriate claims and begin additional work to issue payments to help taxpayers without red flags on their claims.”
About 10% to 20% show low risk and the IRS will begin processing these claims. The first payments for that group should begin later this summer.
The IRS stopped processing new claims in September and said Thursday that the moratorium on ERC claims filed after September 14, 2023 will continue.
The IRS said businesses can continue the claim withdrawal process if they need to ask the IRS not to process an ERC claim for a tax period that has not yet been paid.
