In a significant milestone, the Internal Revenue Service (IRS) has successfully recovered over $1 billion through rigorous enforcement actions related to the Employee Retention Credit (ERC). This achievement underscores the agency’s commitment to ensuring compliance and addressing fraudulent claims, highlighting the effectiveness of its comprehensive review processes since the implementation of a moratorium in September 2023.

Breakdown of Recovery Efforts

1. Voluntary Disclosure Program

One of the key avenues for the IRS’s success has been the Voluntary Disclosure Program. This initiative encourages taxpayers to come forward and rectify their improperly claimed ERC amounts. As a result of this program, the IRS has recouped $225 million. These voluntary disclosures not only reflect the proactive approach of the taxpayers but also significantly ease the administrative burden on the IRS, allowing them to allocate resources more effectively.

2. Withdrawal Program

The Withdrawal Program has also played a crucial role in the IRS’s enforcement strategy, leading to $250 million in savings. This program allows taxpayers to withdraw their previously submitted claims voluntarily, preventing the need for further investigation and enforcement actions. The significant savings from this program indicate its effectiveness in curbing erroneous or fraudulent claims before they necessitate extensive IRS intervention.

3. Identification of Improper Claims

The most substantial portion of the recovered funds, amounting to $570 million, comes from the IRS’s identification of improperly filed claims. Through meticulous review and analysis, the IRS has been able to pinpoint claims that do not meet the eligibility criteria, ensuring that only legitimate claims are processed. This rigorous scrutiny not only protects the integrity of the ERC program but also deters potential future fraud.

Despite these impressive recoveries, the IRS acknowledges that the battle against ERC fraud is far from over. The agency has identified an additional $3 billion in fraudulent transactions that require further investigation. This staggering figure underscores the magnitude of the challenge the IRS faces in safeguarding public funds.

Currently, the IRS is managing 386 criminal cases related to ERC fraud. These cases highlight the serious nature of the fraudulent activities and the lengths to which some individuals and entities will go to exploit the system. The IRS’s ongoing efforts in these criminal cases demonstrate its unwavering commitment to holding perpetrators accountable and protecting the integrity of the tax system.

Targeting Promoter Investigations

A significant aspect of the IRS’s enforcement efforts is the focus on “promoter investigations.” These investigations target individuals and entities that aggressively marketed ERC claims, often misleading businesses into believing they qualified for the credit when they did not. These promoters played a substantial role in the proliferation of improper claims, and the IRS is determined to pursue both civil and criminal actions against them.

By targeting these promoters, the IRS aims to dismantle the networks that facilitate fraudulent claims and prevent future abuse of the ERC program. This proactive approach not only addresses the immediate issue of fraudulent claims but also serves as a deterrent for future bad actors.

The IRS’s recovery of over $1 billion through its ERC enforcement efforts is a testament to the agency’s dedication to upholding the law and ensuring the proper use of public funds. Through programs like voluntary disclosure and withdrawal, coupled with rigorous claim reviews and promoter investigations, the IRS is making significant strides in combating ERC fraud. As the agency continues to navigate the complexities of this enforcement landscape, its ongoing efforts will be crucial in maintaining the integrity of the ERC program and the broader tax system.

Disclaimer: We want to remind you that while we do have expert tax attorneys and tax professionals working on our team and for our clients, this blog is not legal or tax advice. But we do want to help. Reach out and schedule a time to speak with me or one of my teammates to review your unique set of facts and circumstances and see how we might be able to help you.

If you have any questions or think you may be eligible, click here to schedule your assessment.