IRS immediately stops COVID-era small business tax credit after âfloodâ of scams
The Internal Revenue Service has ordered an immediate freeze on processing a COVID pandemic-era tax credit after what the tax agency described as a “flood” of improper applications.
The moratorium on processing the Employee Retention Credit will last through at least the end of the year and covers all new claims. Existing claims are being processed but, due to fraud concerns, may take longer – from the goal of 90 days to as long as 180 days and beyond, the IRS warned. Applicants may also be asked to submit additional information.
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“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in,” IRS Commissioner Danny Werfel said in a statement. “The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants.”
ERC is a refundable tax credit that was designed to allow businesses to continue to pay employees during the COVID pandemic. The credit has been the subject of heavy promotion among companies that claim filing is “risk-free,” something the IRS disputes.
“The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place,” the agency said.
In July, the IRS announced it was stepping up claims reviews and criminal investigations due to suspected dubious claims. Hundreds of criminal cases are currently underway and thousands of ERC claims are being audited, the agency said.
The agency said it is also finalizing details that would allow some 600,000 businesses that have filed for ERC but whose claim has not been processed to withdraw their application. Withdrawing a claim, however, would not necessarily exempt someone from criminal prosecution, however, the IRS said.