Tim’s Tax News on the Tenth – August 2024

On August 8, 2024, the IRS announced additional actions to help small businesses and prevent improper payments in the Employee Retention Credit (“ERC”) program, which include accelerating more payments and continuing compliance work on the complex pandemic-era credit that was flooded with claims following misleading marketing.

The IRS is continuing to work denials of improper ERC claims, intensifying audits and pursuing civil and criminal investigations of potential fraud and abuse. The findings of the IRS review, announced in June, confirmed concerns raised by tax professionals and others that there was an extremely high rate of improper ERC claims in the current inventory of ERC claims.

The IRS has sent out over 28,000 disallowance letters to businesses whose claims showed a high risk of being incorrect. The IRS estimates that these disallowances will prevent up to $5 billion in improper payments. Thousands of audits are underway, and 460 criminal cases have been initiated.

Given the complexity of the ERC and to reduce the risk of improper payments, the IRS emphasized it is moving methodically and deliberately on both the disallowances as well as additional payments to balance the needs of businesses with legitimate claims against the promoter-fueled wave of improper claims that came into the agency.

The ERC program began as an effort to help businesses during the pandemic, but as time went on the program increasingly became the target of aggressive marketing – and potentially predatory in some cases – well after the pandemic ended. Some promoter groups called the credit by another name, such as a grant, business stimulus payment, government relief or other names besides ERC or the Employee Retention Tax Credit (ERTC).

To counter the flood of claims, the IRS announced last fall a moratorium on processing claims submitted after September 14, 2023, to give the agency time to digitize information on the large study group of ERC claims, which are made on amended paper tax returns. The subsequent analysis of the results during this period helped the IRS evaluate next steps, providing the agency valuable information to improve the accuracy of ERC claims processing going forward.

The detailed review during the moratorium allowed the IRS to move into this new stage of the program with more payments and disallowances. In addition, the IRS will remain in close contact with the tax professional community to help navigate through the complex landscape. The IRS’ work continues to respond to improper claims, and they are closely monitoring feedback; the appeals process available for denied claims.

The recent issuance of 28,000 disallowance letters, is not the only action the IRS is and has taken. Other IRS activity with respect to ERC is summarized as follows:

• ERC Claim Withdrawal Program: The claim withdrawal process for unprocessed ERC claims has led to more than 7,300 entities withdrawing $677 million.
• ERC Voluntary Disclosure Program: During the VDP, which ended in March, the IRS received more than 2,600 applications from ERC recipients that disclosed $1.09 billion worth of credits.
• Criminal investigations: As of July 1, 2024, IRS Criminal Investigation has initiated 460 criminal cases, with potentially fraudulent claims worth nearly $7 billion. In all, 37 investigations have resulted in federal charges so far, with 17 investigations resulting in convictions and nine sentencings with an average sentence of 20 months.
• Promoter investigations: The IRS is gathering information about suspected abusive tax promoters and preparers improperly promoting the ability to claim the ERC. The IRS’s Office of Promoter Investigations has received hundreds of referrals from internal and external sources. The IRS will continue civil and criminal enforcement efforts of these unscrupulous promoters and preparers.
• Audits: The IRS has thousands of ERC claims currently under audit.

If you would like more details, please do not hesitate to call our office. Our office has been successful in helping taxpayers with IRS and IDOR collection problems for over 30 years. If you have a tax or debt problem, please contact me at 847-705-9698 or thughes@lavellelaw.com and find out how we can help you.

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