The IRS said it plans to deny tens of thousands of improper, high-risk employee retention credit claims from employers, totaling billions of dollars, after a review found “a large number of improper claims,” the agency announced Thursday.
The fraud reduction effort comes as the IRS starts a new round of processing of lower-risk claims for eligible taxpayers.
Insights gleaned from the review of “risky” activity will be used “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,” IRS Commissioner Danny Werfel said in a statement.
Since last September, as part of the review, the agency has been digitizing and analyzing data to assess a group of more than 1 million ERC claims representing more than $86 billion “filed amid aggressive marketing last year.”
Approximately 10% to 20% of the reviewed claims showed “clear signs of being erroneous claims for the pandemic-era credit,” the IRS said. The analysis also estimated that between 60% and 70% of the claims have “an unacceptable level of risk.”
“At the same time, the IRS continues to be concerned about small businesses waiting on legitimate claims, and the agency is taking more action to help,” the agency said. “Between 10% and 20% of the ERC claims show a low risk. For those with no eligibility warning signs that were received prior to last fall’s moratorium, the IRS will begin judiciously processing more of these claims.”
The IRS said it anticipates that some of the first payments for the low-risk claims will be sent out later this summer, although at a “dramatically slower pace” than before the increased scrutiny.
“This is one of the most complex credits the IRS has administered, and we continue to ask taxpayers for patience as we unravel this complex process,” Werfel said. “Ultimately, this period will help us protect taxpayers against improper payouts that flooded the system and get checks to those truly eligible.”
