IRS suspends processing of Employee Retention Credit due to ‘suspicious claims’

IRS Commissioner Danny Werfel has taken immediate action to halt the processing of new claims for the Employee Retention Credit (ERC). This credit was established to provide assistance to small businesses impacted by the Covid-19 pandemic and has the potential to be worth significant amounts of money per employee. Unfortunately, the complexity of the tax break has led to numerous firms falsely promising businesses that they qualify for the credit. With concerns mounting about small business owners falling victim to scams, Werfel made the decision to address the issue.

The IRS has already received approximately 3.6 million claims since the inception of the program, with over 600,000 claims still open, the majority of which have been submitted within the past 90 days. The extent of potentially fraudulent ERC claims has become a cause for alarm, prompting the IRS’s criminal investigation division to launch 252 investigations involving over $2.8 billion. Out of these investigations, 15 have resulted in federal charges, with six of those leading to convictions.

Werfel emphasizes the importance of small businesses seeking guidance from trusted tax professionals rather than engaging with promoters seeking to claim a substantial portion of their refund. To address any discrepancies, the IRS is currently developing a settlement program designed to assist small businesses that may have inadvertently received the credit.