IRS stops pandemic small-business tax break due to potential fraud claims.
IRS Pauses Small-Business Tax Credit Program Amid Concerns of Ineligible Claims
The Internal Revenue Service (IRS) has announced a pause on a small-business tax credit program for the remainder of the year due to worries about ineligible claims being filed.
The Employee Retention Credit (ERC) was introduced during the COVID-19 pandemic to incentivize small businesses to keep their employees on payroll. It provided a refundable tax credit for businesses that paid employees while facing lockdowns and restrictions. However, the IRS has been inundated with applications for ERC claims even after three years.
In response to the ”rising concerns about a flood of improper Employee Retention Credit claims,” the IRS has implemented an immediate moratorium on the program, effective from September 14 until at least the end of the year.
Related Stories
- IRS Grants Relief to Taxpayers In Georgia Affected by Hurricane Idalia – 9/13/2023
- IRS Failing to Protect Sensitive Taxpayer Information: Watchdog - 9/13/2023
During the moratorium, new claims for ERC will not be processed. However, the IRS will continue working on previously submitted claims, although processing times may be longer due to concerns about fraud.
The moratorium was ordered by IRS Commissioner Danny Werfel due to worries that third parties or “promoters” were pressuring ineligible businesses to file for ERC claims. These third parties can charge high fees, up to 25 percent of the ERC refund.
Despite promoters advertising ERC claim-submissions as “risk-free,” businesses filing such claims face significant risks as the IRS increases its audit and criminal investigation efforts.
According to the IRS, businesses that improperly file for ERC claims will be required to repay the credit along with potential interest and penalties. The agency has received approximately 3.6 million ERC claims, which accounts for about a fourth of all U.S. businesses that file tax returns annually.
The IRS has already referred thousands of ERC claims for audit, and hundreds of claims have been referred to the IRS’s Criminal Investigation division for potential prosecution. As of July 31, the division has initiated 252 investigations related to potential ERC claim fraud, totaling over $2.8 billion.
IRS Commissioner Danny Werfel expressed concern about small-business owners being scammed by unscrupulous actors, stating that the continued aggressive marketing of these schemes harms well-meaning businesses and delays the payment of legitimate claims.
Tax Credits and Fraud
When the program was initially introduced during the pandemic, the tax credit offered to businesses was 50 percent of a qualified employee’s wages, limited to $10,000 per year. The credit was later updated to 70 percent of wages, limited to $10,000 in wages per quarter.
To qualify for ERC, a business must have shut down due to a government-imposed restriction in 2020 or the first three quarters of 2021. Businesses that experienced a decline in gross receipts during this period may also qualify. These employers must have paid wages to their employees during the period to claim ERC.
The IRS had previously issued an alert about ERC fraud in March, advising businesses to listen to their tax professionals’ advice if questions arise about the accuracy of the claim.
Despite ERC being applicable only to businesses affected by the pandemic, fraudsters entice business owners by falsely claiming that most businesses qualify for the credit.
The extensive ERC fraud has prompted calls for new legislation to address the issue. The IRS has paid over $230 billion in ERC claims, surpassing the original congressional estimate for the program.
The IRS advises businesses that have not yet filed for their ERC claim to review the guidelines and wait to file for the credit, as many applications currently filed are likely ineligible.
How will the IRS provide additional guidance to small businesses regarding the eligibility criteria for the ERC during the moratorium?
Red thousands of ERC claims to its Fraud Detection and National Security (FDNS) division for further investigation. The FDNS division is responsible for identifying potentially fraudulent claims and taking appropriate action to ensure compliance with tax laws.
During the moratorium, the IRS will also focus on providing additional guidance to small businesses regarding the eligibility criteria for the ERC. This includes clarifying the requirements for businesses to prove their eligibility, such as showing a significant decline in gross receipts or being subject to government-mandated closures or restrictions.
The pause on the small-business tax credit program has garnered mixed reactions from the business community. While some business owners express frustration over the delay in receiving much-needed financial assistance, others understand the importance of ensuring the program’s integrity and preventing fraudulent claims.
To address the concerns of small businesses affected by the moratorium, the IRS plans to provide outreach and education programs to help businesses navigate the application process and understand the eligibility requirements. This includes hosting webinars, releasing informational materials, and offering one-on-one assistance to business owners.
The IRS advises business owners to consult with tax professionals or visit the official IRS website for accurate and up-to-date information on the ERC program and its requirements. They also encourage businesses to use the IRS’s online resources to access necessary forms and instructions for filing claims.
In conclusion, the IRS has implemented a pause on the small-business tax credit program, the ERC, due to concerns about ineligible claims being filed. The moratorium aims to address the rising concerns of fraud and improper claims by third parties pressuring businesses to file for the credit. While the program is on hold, the IRS will focus on processing previously submitted claims and providing additional guidance to businesses. It is essential for businesses to comply with the eligibility requirements and avoid potential penalties for improper filings. By ensuring the integrity of the program, the IRS aims to support small businesses in navigating the challenging economic landscape brought about by the COVID-19 pandemic.
References:
- “IRS Grants Relief to Taxpayers In Georgia Affected by Hurricane Idalia” – The Epoch Times, September 13, 2023
- “IRS Failing to Protect Sensitive Taxpayer Information: Watchdog” - The Epoch Times, September 13, 2023
" Conservative News Daily does not always share or support the views and opinions expressed here; they are just those of the writer."
*As an Amazon Associate I earn from qualifying purchases
Now loading...