According to the Internal Revenue Service, a recent examination of one million claims for the Employee Retention Credit, totaling $86 billion, reveals that the majority of these claims are likely to be improper.
IRS Flags 10-20% of ERC Claims as Fraudulent, Denials Imminent
The ERC was initially intended to assist businesses in retaining employees during the shutdowns caused by the pandemic.
However, it unfortunately became a hub for fraudulent activities. The intricate eligibility criteria provided an opportunity for scammers to exploit small businesses by offering assistance with ERC applications for a fee, regardless of their actual eligibility.
According to AP, the IRS has stated that a significant percentage of the 1 million claims, approximately 10% to 20%, exhibit clear signs of being erroneous.
A significant portion, ranging from 60% to 70%, display a level of risk that is deemed unacceptable and will undergo further evaluation.
Many of these claims will be denied in the coming weeks, as Werfel states, "This information will be used to reject billions of dollars in claims that are clearly improper."
IRS to Process ERC Claims Slowly, Payments Expected This Summer
Due to the focus on preventing fraud, certain small businesses are still awaiting their rightful claims.
According to the IRS, the data indicates that those numbers are actually quite low, estimated to be between 10% and 20% of ERC claims.
The IRS is currently processing those claims without any indication of ineligibility prior to the moratorium. It is expected that the first payments in this group will be sent out later this summer, Forbes reported.
However, the IRS has stated that these payments will be processed at a significantly slower pace than during the pandemic period. So, it may take some time for the payments to be made.
Additional claims will be processed and paid in the upcoming summer after a thorough final review.
The agency has stated that an additional review is necessary due to potential calculation errors in the submissions. Any claims with calculation errors will be adjusted before payment is made.
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