IRS Investigating Incorrect COVID Tax Credit Claims
The Internal Revenue as of 2023 is scrutinizing fraudulent claims made by businesses for the Employee Retention Credit (ERC), a refundable tax benefit aimed at aiding eligible businesses and tax-exempt organizations impacted by the COVID-19 pandemic. This credit, however, expired in 2021. Recently, the IRS has put a moratorium on processing any claims filed after mid-September 2023. It plans to deny many claims, particularly those at high risk of being improper, as noted by The Wall Street Journal. The newspaper also highlighted that since the pandemic’s emergency phase ended, numerous pop-up firms and marketers have spurred a surge in dubious claims, potentially misleading many taxpayers about their eligibility. The government has disbursed around $230 billion for this program. IRS Commissioner Danny Werfel expressed concern about taxpayers being deceived into thinking they qualify for substantial payments when many do not.
The Internal Revenue Service is examining improper claims businesses have made for the Employee Retention Credit (ERC) a refundable tax credit for certain eligible businesses and tax-exempt organizations were affected during the COVID-19 pandemic. The ERC expired in 2021.
Claims filed after mid-September 2023 have been blocked from being processed by a moratorium.
“In coming weeks, the IRS plans to deny tens of thousands of claims that had shown the greatest risk of being improper, the agency said,” The Wall Street Journal reported, adding, “Pop-up firms and marketers created a mini-industry that encouraged a flood of claims long after the pandemic’s emergency-phase ended—many of which the IRS has said are questionable.”
The Journal noted that the government has doled out roughly $230 billion for the program.
“The IRS remains deeply concerned about how many taxpayers have been misled and deluded by promoters into thinking they’re eligible for a big payday,” IRS Commissioner Danny Werfel stated. “People may think they are on safe ground, but many are simply not eligible under the law.”
The GOP-led House of Representatives, attempting to save an estimated $80 billion, voted in January to end the ERC for claims filed after Jan. 31, 2024, but the Democrat-led Senate has blocked the move.
By mid-May, unprocessed ERC claims had reached 1.4 million by mid-May; 880,000 were filed before the moratorium, according to the government.
Last month Stenson Tamaddon, a Phoenix-based tax advisory firm and provider of ERC services, sued the United States Internal Revenue Service (IRS), the United States of America, the U.S. Department of the Treasury, IRS Commissioner Daniel Werfel, and Treasury Secretary Janet Yellen.
“Stenson Tamaddon alleges that the IRS violated the Administrative Procedure Act (APA) by enacting legislative rules without following proper procedures, specifically concerning ‘Notice 2021-20,’” the company stated. “This notice significantly restricted the availability of Employee Retention Credit (ERC) payouts by narrowing the eligibility criteria.”
“We believe that the IRS has overstepped its authority and failed to follow proper procedures, resulting in unfair restrictions on businesses entitled to the Employee Retention Credit,” CEO Eric Stenson said. “Our goal is to ensure that these businesses receive the support they deserve, this litigation is a last resort.” He added. “Our position remains that there is no broad authority in the Internal Revenue Code or any corresponding tax regulation that allows the IRS to stop processing an entire class of tax returns. I wish they would have given us more information about these risk markers they were using. The IRS needs to be more transparent and should provide clear, detailed criteria as to what constitutes a high-risk claim.”
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