The IRS is rejecting more than 20,000 applicants who filed for the employee retention credit or ERC as part of its efforts to battle a surge of wrongful claims.
Those who filed an ineligible ERC claim will receive a Letter 105 C in the mail. This form officially denies the applicant’s request to receive funds but provides a means of appeal. Submitting a wrongful claim can result in repayment of any funds received, including interest, along with additional penalties.
Introduced during the 2020 pandemic as a means of helping businesses keep employees on payroll, the ERC continues to be distributed even after COVID restrictions are long gone. The IRS allows companies who did not claim the credit previously to apply for an amended tax return provided they meet ERC eligibility, earning them thousands of dollars per staff member.
However, in the years since, the agency grew increasingly aware that many filers were submitting fraudulent ERC claims, which it attributed to scammers. In essence, the con artist would call a business pretending to be part of a tax preparation firm and convince the manager or owner that they were owed an ERC rebate, even if they were not eligible. The scammer would then offer their services, ostensibly to ensure the IRS processed the claim in a timely manner and pocket the cash.
The number of fraudulent claims rose to such heights that the IRS in September announced it would place ERC claims processing on hold. Soon after, the agency introduced a special withdrawal process that gave businesses the opportunity to cancel their application for the tax credit, provided they had not already received or deposited a rebate. For those who have already accepted the ERC in error, the IRS plans to introduce a “voluntary disclosure program” before the New Year, which will provide tax filers a way to avoid punitive action.