IRS recovers funds from businesses awarded under fraudulent COVID-era tax credit program

IRS Recovers $1.6 Billion in Employee Retention Credit Fraud with Help of Small Businesses

The Employee Retention Credit (ERC) was intended to help businesses retain employees during pandemic-related shutdowns, but it unfortunately became a target for fraud due to its complex eligibility rules. The IRS has now reported progress in its efforts to recover funds that were improperly distributed under this credit.

To do so, the IRS received $225 million through a voluntary disclosure program that allowed small businesses who believed they received the credit in error to return the money. Over 500 taxpayers participated in this program, with 800 submissions still being processed. Additionally, an ongoing program allowing businesses to withdraw unprocessed claims has resulted in 1,800 businesses withdrawing $251 million.

The IRS has also conducted audits on over 12,000 businesses that filed more than 22,000 improper claims, resulting in $572 million being assessed. IRS Commissioner Danny Werfel expressed concern over the widespread abuse of these claims and emphasized the IRS’s efforts to assist misled businesses.

While the IRS stopped processing new claims in September, they anticipate resuming processing in the spring. IRS Criminal Investigation is currently reviewing an additional $3 billion in claims. These initiatives are aimed at recovering funds that were fraudulently obtained and at preventing further abuse of the ERC program.

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