The IRS said Thursday that it plans to deny the vast majority of claims for the Employee Retention Credit program, which was meant to help businesses get through the pandemic but has been dogged by suspicions of fraud.
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IRS says it will deny most claims of pandemic tax credit for employers
Congress created the tax credit in March 2020 to help businesses that kept paying employees after being shut down early in the pandemic. Despite narrow guidelines for what businesses could qualify for the credit, applications for the program have surged across the last three years, and the IRS stopped processing new claims last September. The agency will continue that moratorium.
The IRS said Thursday it has investigated 1 million claims worth about $86 billion. The IRS plans to deny between 10 and 20 percent of the highest-risk claims in the near future and will continue investigating another 60 to 70 percent of claims that show an “unacceptable level of risk,” the agency said.
The tax credit only applied to certain businesses, including those that saw a steep decline in revenue or those that were fully or partially shut down by government orders, such as restaurants and theaters. But the tax credit program has been the target of aggressive marketing tactics with robocallers and TV ads promising businesses they could receive $26,000 in tax credits for each employee retained. Companies behind the ads offered to file claims in exchange for a payout from the refund.
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“You couldn’t turn on the TV or radio without coming across an ERC ad,” Werfel said.
Businesses have filed 3.6 million claims for the ERC since the program’s debut, The Post previously reported. The ERC’s price tag has now ballooned to more than $232 billion, far exceeding Congress’s initial expectations, Werfel said.
Nearly 5,000 businesses have withdrawn their ERC claims — totaling $531 million — since the IRS launched a withdrawal processes last year. Investigators have also initiated 450 criminal cases related to potentially fraudulent charges worth nearly $7 billion. Thirty-six criminal investigations into claims have resulted in federal charges, Werfel said.
The program initially was meant to run until April 2025, but the IRS is consulting with Congress about ending the program early, Werfel said.
This is a developing story. It will be updated.