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IRS Announces Crackdown on Improper Employee Retention Credit Claims

In a move to protect taxpayers and small businesses, the Internal Revenue Service (IRS) announced plans to deny tens of thousands of improper high-risk Employee Retention Credit (ERC) claims. This decision follows a detailed review of ERC claims, which has uncovered widespread issues with improper claims.


Key Takeaways:


  1. Denial of High-Risk Claims: The IRS has identified between 10% and 20% of ERC claims as high-risk, with clear signs of being erroneous. Tens of thousands of these claims will be denied in the coming weeks.

  2. New Round of Processing for Lower-Risk Claims: The IRS will start processing lower-risk ERC claims to help eligible taxpayers. This group, representing 10% to 20% of the claims, shows no eligibility warning signs and will be processed judiciously.

  3. Complexity and Patience: IRS Commissioner Danny Werfel highlighted the complexity of the ERC and asked taxpayers for patience as the IRS works through the claims. The IRS aims to protect taxpayers from improper payouts while ensuring those eligible receive their payments.

  4. Massive Data Review: Since last September, the IRS has digitized and analyzed data from over 1 million ERC claims, amounting to over $86 billion. This review confirmed the high rate of improper claims.

  5. Unacceptable Risk Group: Between 60% and 70% of ERC claims were found to have an unacceptable level of risk. The IRS will conduct further analysis on these claims to improve compliance review and protect against improper payments.

  6. Continued Support for Small Businesses: The IRS remains concerned about small businesses waiting on legitimate claims and is taking steps to help. Payments for lower-risk claims are expected to begin later this summer.

  7. Transition and Penalty Relief: To ease the transition, the IRS is providing transitional and penalty relief for reporting and backup withholding rules on certain transactions.

  8. Moratorium on New Claims: The IRS will continue the moratorium on new ERC claims submitted after September 14, 2023. This decision aims to prevent a surge of improper claims and give the agency time to consult with Congress and other partners on the future of the ERC program.

  9. Special IRS Withdrawal Program: Businesses with unprocessed ERC claims are encouraged to use the IRS ERC Withdrawal Program to avoid future compliance issues.

  10. Ongoing Compliance Efforts: The IRS has recovered over $2 billion through various compliance efforts, including the Voluntary Disclosure Program and the claim withdrawal process. Criminal investigations and audits of ERC claims are also underway.


Conclusion:

The IRS's actions highlight the importance of compliance and the need for businesses to be cautious when filing for the ERC. The agency's efforts aim to protect taxpayers from improper claims and ensure that eligible businesses receive the support they need.

For more detailed information, read our full blog post on our website.



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