IRS Initiates Crackdown: Thousands of ERC Claims Disallowed, Unveils Voluntary Disclosure Program to Combat Fraud

This week, the IRS announced that it is sending more than 20,000 letters to taxpayers notifying them that their requested Employee Retention Credit (“ERC”) claims have been disallowed. The IRS noted that these disallowances are for claims for entities that did not exist or did not have paid employees during the period of eligibility for such credits. In its announcement, the IRS noted that it will soon unveil a voluntary disclosure program so that taxpayers who believe their ERC claim may have been filed erroneously can come forward and withdraw it before the IRS takes further action. The IRS often relies on voluntary disclosure programs such as this to allow taxpayers who have recognized an error in a previous tax filing to come forward to correct that error, with the taxpayer usually receiving penalty relief in return for coming forward. Additionally, for ERC claims that are still pending, the IRS is continuing to accept and process withdrawal requests.

The ERC is a refundable tax credit for businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. In order to claim the credit, businesses must meet certain eligibility requirements. Unfortunately, the ERC has been the target of aggressive marketing and scam promotions with scammers preying on taxpayers by misleading ineligible taxpayers about eligibility and requesting large fees to claim the credit. This week’s announcement is the IRS’s initial step in combatting fraud in ERC claims. The IRS has indicated that it will send more letters to other ineligible taxpayers in the future.

Click here to learn more about the IRS’s efforts to combat improper ERC claims, as well as the voluntary disclosure program and the ERC claim withdrawal process:

IRS expands work on aggressive Employee Retention Credit claims; 20,000 disallowance letters being mailed, more action and voluntary disclosure program coming | Internal Revenue Service

Thank you to Colleen Spain for this week’s Tax Tracker!