IRS Expands Fraud Crackdown in Pandemic Tax Program

The Internal Revenue Service is expanding a fraud crackdown in a pandemic-era tax credit program after an analysis found a majority of outstanding claims appear to be improper.

The agency said on Thursday it was extending its freeze on new claims for the Employee Retention Tax Credit program created in 2020 that allows businesses to collect up to $26,000 for each employee on its payroll.

The IRS is also denying tens of thousands of claims it has determined were erroneous.

The original program, expanded in 2021, was projected to cost the federal government $55 billion over a decade, according to the New York Times.

But by September 2023, the IRS had received nearly four million applications and had paid out $230 billion in employee retention refunds. It currently has a backlog of 1.4 million claims, the outlet reported.

IRS commissioner Daniel Werfel said the agency's enforcement teams are scrutinizing claims closely — and investigating illicit tax preparation companies that've been encouraging ineligible taxpayers to apply, the Times reported.

"The IRS remains deeply concerned about how many taxpayers have been misled and deluded by promoters into thinking they're eligible for a big payday," Werfel told the Times.

The IRS has been analyzing one million claims to see how the application process was working, the Times reported.

The review found as many as 90% of the claims could be fraudulent: 10-20% showed clear signs of being erroneous; an additional 60-70% showed an "unacceptable level of risk."

Only 10-20% of the claims, worth about $86 billion, showed no warning signs, the outlet reported.

Since the IRS started the crackdown on the program fraud, it initiated 450 criminal cases, with 36 investigations leading to federal charges, the Times reported.

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