The IRS has reported progress in its efforts to recover funds that were wrongly distributed under the Employee Retention Credit (ERC). The ERC was established to assist businesses in retaining employees during the pandemic-induced shutdowns. However, the program became a target for fraudulent activities due to its intricate eligibility criteria, which scammers exploited to defraud small businesses.
As part of its initiatives, the IRS disclosed that it received $225 million through a voluntary disclosure program that concluded on March 22. This program allowed small businesses that believed they had received the credit erroneously to return the funds and retain 20% of the amount. Over 500 taxpayers participated in this program, with an additional 800 submissions currently under review.
Furthermore, an ongoing program enabling small businesses to retract unprocessed claims has resulted in 1,800 businesses withdrawing claims worth $251 million. The IRS has also conducted audits on more than 12,000 businesses that filed over 22,000 improper claims, resulting in assessments totaling $572 million.
IRS Commissioner Danny Werfel expressed the agency's concern over the widespread abuse of these claims, emphasizing the detrimental impact on small businesses. He noted that the IRS is pleased with the outcomes of the initiatives aimed at assisting misled businesses.
In September, the IRS halted the processing of new claims under the ERC. However, it is anticipated that processing will resume sometime in the spring. Additionally, the IRS Criminal Investigation unit is reviewing an additional $3 billion in claims for potential fraudulent activities.
