News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.
The IRS announced on Thursday that it’s letting companies that filed employee retention credit (ERC) applications play a reverse card if they’re worried about the applications' accuracy.
The IRS said the move is “part of a larger effort to protect small businesses and organizations from scams.” ERC applicants that haven’t received an ERC refund can withdraw their claims as “if they were never filed.”
However, applicants caught intentionally submitting fraudulent applications can still be investigated and criminally charged, even if they withdraw, according to the IRS.
The agency said withdrawal is intended to help companies that may have felt coerced into filing an ERC claim for which they weren’t eligible by a deluge of ERC refund marketing from unscrupulous consulting companies. (Hands up if you’ve gotten more than 10 ERC marketing emails already today 🙌).
Douglas O’Donnell, deputy commissioner of services and enforcement at the IRS, told the New York Times in May that “he estimated that hundreds and possibly thousands of tax credit ‘mills’ had popped up across the country in the last three years.”
“The aggressive marketing of these schemes has harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. We want to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and we encourage them to closely review the withdrawal option and the requirements,” IRS Commissioner Danny Werfel said in a statement. “We continue to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.”
The ERC is a pandemic-era refundable tax credit given to employers that continued paying employees during Covid shutdowns and disruptions. The IRS said it’s received approximately 3.6 million ERC applications since the program started, and will continue accepting applications until 2025.
The IRS already issued a moratorium on new ERC applications in September in the face of a “flood of improper Employee Retention Credit claims.” The IRS said in September that it had uncovered $8 billion in “suspected pandemic fraud” and as of July, had already launched 252 investigations into "potentially fraudulent" ERC claims totaling more than $2.8 billion, and federally charged 15 ERC fraud cases.