‘Vast Majority’ of Pandemic Employee Retention Credit Claims Are Likely Scams, Says IRS
You can add the Internal Revenue Service to the ranks of federal agencies conceding that raining taxpayer money on all and sundry to offset the negative effects of pandemic-era closures didn’t go as well as intended. Not only was a program meant to offset the cost of paying workers during lockdowns and voluntary social-distancing prone to being gamed, but the “vast majority” of claims submitted to the program show evidence of being fraudulent.
The Tax Man Is Shocked To Discover Fraudsters
In the course of a detailed review of the Employee Retention Credit, “the IRS identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk group, which show clear signs of being erroneous claims for the pandemic-era credit,” the IRS announced June 20. “In addition to this highest risk group, the IRS analysis also estimates between 60% and 70% of the claims show an unacceptable level of risk.”
The Employee Retention Credit was offered to businesses that were shut down by government COVID-19 orders in 2020 or the first three quarters of 2021, experienced a required decline in gross receipts during that period, or qualified as a recovery startup business at the end of 2021. But it was clear early on that scammers were taking advantage of giveaways of taxpayer money, either to claim it for themselves or to pose as middlemen helping unwitting business owners file claims.
In March of 2023, the tax agency warned of “blatant attempts by promoters to con ineligible people to claim the credit.” In September of that year, it stopped processing claims amidst growing evidence that vast numbers of applications were “improper,” as the IRS delicately puts it. In March 2024, the agency announced that its Voluntary Disclosure Program had recovered $1 billion (since raised to over $2 billion) in improper payouts from participants who got to keep 20 percent of the take.
Ultimately, only “between 10% and 20% of the ERC claims show a low risk” for fraud, even by generous federal standards for throwing other people’s money at problems largely of government creation.
“We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims,” commented IRS Commissioner Danny Werfel.
As of the end of May, the IRS “has initiated 450 criminal cases, with potentially fraudulent claims worth nearly $7 billion.”
There’s More Fraud Where That Came From
Of course, this is only the tip of the iceberg when it comes to pandemic stimulus fraud.
In April, Attorney General Merrick Garland boasted that the COVID-19 Fraud Enforcement Task Force (yes, it’s widespread enough to rate its own task for
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