The Employee Retention Credit (ERC) was introduced during the pandemic to assist businesses retain their employees. However, the complexity of its eligibility rules made it a target for fraud. Scammers took advantage of this by offering assistance with ERC applications for a fee, even if the businesses did not qualify.
The IRS has taken steps to address this issue, including launching a voluntary disclosure program that allowed small businesses to return money they received in error and keep 20% of it. Over 500 taxpayers participated in the program before it ended on March 22, with another 800 submissions still being processed. Additionally, over 1,800 businesses have withdrawn $251 million worth of unprocessed claims through an ongoing program.
The IRS has also conducted audits on over 12,000 businesses that filed over 22,000 improper claims. This resulted in $572 million in assessments. IRS Commissioner Danny Werfel expressed concern over the widespread abuse of the ERC claims that have harmed small businesses. The IRS stopped processing new claims in September but plans to resume processing in the spring, with an additional $3 billion in claims under review by the IRS Criminal Investigation.