IRS to start ‘intensifying audits’ on bogus employee retention claims

Walloped by bogus claims for the pandemic-era Employee Retention Tax Credit (ERC), the IRS says it’s ramping up audits and criminal investigations of suspected fraud.

The IRS has sent out 28,000 rejection letters to businesses in recent weeks that could prevent “up to $5 billion in improper payments,” the agency said in a Thursday release. So far, 460 criminal cases have been opened against suspected fraudsters.

“The IRS is committed to continuing our work to resolve this program as Congress contemplates further action, both for the good of legitimate businesses and tax administration,” IRS Commissioner Danny Werfel said in a statement.

Werfel said Thursday the IRS was still getting upwards of 17,000 ERC claims per week — the same amount as in June — even though the program expansion had originally been intended for pandemic relief. 

Earlier in the year Senate Finance Committee Chair Ron Wyden (D-Ore.) said he’d been told by an IRS whistleblower that as many as 95 percent of ERC claims were fraudulent.

Despite all the fraud, the IRS says it’s moving now to start processing new claims after enacting a moratorium. 

Previously, the agency was not working on claims that were submitted after Sept. 14, 2023, but will now start processing ERC claims filed between Sept. 14, 2023, and Jan. 31, the IRS said.

Congress recently considered doing away with the ERC program altogether and using its cancellation as a way to pay for an expansion of the popular child tax credit along with business credits and an agreement on double taxation between the U.S. and Taiwan.

Despite passing the House with broad bipartisan support, Senate Republicans blocked the proposal from moving forward last week, saying it amounted to a “show vote” put forward by Democrats.

The new moratorium end date lines up with the proposed cancellation date for the credit outlined in the failed child tax credit deal.

Financial fraud related to unemployment programs set up during the pandemic has been a concern among various federal agencies for the last few years, with agencies like the Labor Department and Justice Department working to go after abusers of pandemic relief programs.

In 2022, the Labor Department’s inspector general announced that more than 1,000 individuals had been charged with crimes relating to unemployment insurance fraud since the beginning of the pandemic.