The IRS has announced the suspension of a pandemic-era tax credit program due to rampant fraudulent claims. The Employee Retention Credit, which was designed to reward businesses that kept paying their employees during the shutdowns, has become a target for scammers.
IRS Commissioner Danny Werfel expressed concern over the increasing number of dishonest small business owners being scammed and the abuse of the program. As a result, the IRS is halting new claims for the tax credit and will be taking more time to scrutinize existing claims.
Mr. Werfel also assured that the IRS would implement new protections and safeguards in the future to restart the credit under more transparent terms. The agency has received approximately 3.6 million claims over the program’s lifespan, with around 600,000 claims currently pending.
In addition, the IRS is working on a way for employers to withdraw potentially fraudulent claims without facing penalties. The agency is collaborating with the Justice Department to pursue legal action against scammers.
Since the inception of the tax credit, the IRS’s criminal division has investigated 252 cases of fraud, resulting in 15 prosecutions. Of these, six have led to convictions, with an average prison sentence of 21 months.
The IRS highlighted that scammers have been misleading businesses by advertising their services and suggesting that most businesses qualify for the credit when the eligibility criteria are actually quite limiting. Businesses must have experienced closures or significant drops in business due to shutdown orders while still paying their employees between March 12, 2020, and January 1, 2022. Additionally, employers cannot claim the credit if they have already received Paycheck Protection Program loans for the same employees.
Fraudulent claims have become a prevalent issue in various pandemic assistance programs, including the Paycheck Protection Program, small business loans, and expanded unemployment benefits. The government’s inspector general has estimated that unemployment fraud alone might have reached $135 billion.
At WealthNationUSA, we understand the challenges small businesses face during these trying times. It is disheartening to see scammers take advantage of programs that were intended to provide genuine relief. We support the IRS’s efforts to combat fraud and protect small business owners from falling victim to unscrupulous actors. It is crucial that future programs have robust safeguards to ensure that financial assistance reaches the right recipients without being misused.
