The Internal Revenue Service (IRS) initiated a crackdown on dubious Employee Retention Credit (ERC) claims, mailing over 20,000 disallowance letters to taxpayers and entities that did not exist or had no employees during the eligibility period.
Intensifying its scrutiny of ERC claims as part of an expanded effort to safeguard against fraudulent claims, the revenue watchdog said on Wednesday that it identified a significant number of taxpayers who failed to meet the basic criteria for the credit.
Starting this week, the IRS said those deemed ineligible will receive Letter 105 C, indicating their claim has been disallowed.
While the IRS said in October that it already has “hundreds of criminal cases being worked,” with “thousands” of ERC claims being referred for audit, this group includes entities either not in existence during the eligibility period or without paid employees at that time.
The approach includes a special program for business owners, allowing them to voluntarily withdraw pending claims with the IRS if they think they filed an inaccurate tax return, as well as an upcoming disclosure initiative for business owners to return questionable payments to avoid future action.
The IRS said it is allowing taxpayers to voluntarily withdraw claims and return questionable payments in response to aggressive marketing tactics that have targeted small businesses and other organizations.
Commissioner Danny Werfel expressed concern over those aggressive marketing leading to ineligible claims, saying in a statement that “it’s not surprising that we’re seeing claims that clearly fall outside of the legal requirements,” noting that “more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received.
“As we continue our audit and criminal investigation work involving the Employee Retention Credits, we continue to urge people who submitted a claim to review the rules with a trusted tax professional,” the commissioner said in the statement.
“If they filed an inaccurate claim, we urge them to consider withdrawing their pending claim or use the upcoming disclosure program to repay improper refunds to avoid future action.”
