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IRS Freezes Pandemic-Era Tax Credit Claims amid Widespread Fraud

The Internal Revenue Service has reviewed some one million claims for coronavirus pandemic-era Employee Retention Credit (ERC) tax breaks representing $86 billion and declared the “vast majority” are at risk of being improper.

Congress established the program during the coronavirus pandemic as an incentive for businesses to keep workers on the payroll but it quickly became a magnet for fraud.

Demand for the credit soared as Congress extended the tax break and made it available to more companies. Aggressive marketers dangled the prospect of enormous refunds to business owners if they would just apply, AP reports.

Complex eligibility rules reportedly allowed scammers to offer small businesses help in applying for the ERC for a fee — even if they stood at little to no chance of success.

Some 10 percent to 20 percent of the one million claims show “clear signs of being erroneous” and tens of thousands of those will be denied in coming weeks, the IRS said.

Yet another 60 percent to 70 percent show an “unacceptable risk” of being improper and will be further evaluated.

“The completion of this review provided the IRS with new insight into risky Employee Retention Credit activity and confirmed widespread concerns about a large number of improper claims,” said IRS Commissioner Danny Werfel.

“We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims.”

The IRS stopped processing new claims in September. It said Thursday the moratorium on ERC claims submitted after Sept. 14, 2023 will continue, the AP report details.

Businesses can pursue the claim withdrawal process if they need to ask the IRS not to process an ERC claim for any tax period that hasn’t been paid yet.

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