Congress enacted the Employee Retention Credit during COVID with the best of intentions to help employers by giving them tax credits for laid off employees. Instead, there was massive, attempted fraud. Battalions of sleazy jackals advised dishonest taxpayers to file bogus returns. They often didn’t sign the returns themselves because they weren’t tax preparers and thus this puts all the problems on the taxpayer. Most of these returns will be disallowed. Since there is no 20% penalty for erroneous claims in employment tax as there is in for income tax, some of these will be now criminally prosecuted. Good.
Upwards of 70% of these returns are problematic.
IRS identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk group, which show clear signs of being erroneous claims for the pandemic-era credit. Tens of thousands of these will be denied in the weeks ahead.
In addition to this highest risk group, the IRS analysis also estimates between 60% and 70% of the claims show an unacceptable level of risk.
The March 22 deadline to report voluntarily report false Employee Retention Credit has passed. When IRS says “erroneous claims” that means at best mistaken and quite possibly fraudulent.
The special ERC Voluntary Disclosure Program (VDP), has yielded more than $225 million from over 500 taxpayers with another 800 submissions still being processed and more being filed at the last minute before the deadline.
The ongoing claim withdrawal process for those with unprocessed ERC claims has led to 1,800 entities withdrawing $251 million.
The IRS has determined that more than 12,000 entities filed over 22,000 claims that were improper and resulted in $572 million in assessments. The IRS is continuing this work, and more activity is planned in this – and other areas in the months ahead.
There will be tens of thousands, of taxpayers who now will be owe money rather than getting fraudulent credits. Plus, they will be subject to penalties.