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The Internal Revenue Service (IRS) has made significant strides in recouping funds from erroneous Employee Retention Credit (ERC) claims, with over $1 billion identified in potential savings. The effort, spanning enforcement measures and voluntary programs, has targeted 12,000 entities responsible for more than 22,000 improper claims, resulting in assessments totaling $572 million.

Among the initiatives, the Voluntary Disclosure Program (VDP) has proven fruitful, yielding over $225 million from 500 taxpayers. Additionally, 1,800 entities have withdrawn $251 million in claims through the claim withdrawal process. IRS Commissioner Danny Werfel expressed optimism about the program’s efficacy in aiding misled businesses and emphasized the agency’s commitment to broader compliance efforts.

While the IRS Criminal Investigation (CI) unit is examining another $3 billion in claims, officials anticipate increasing figures as more voluntary disclosures are processed and compliance work advances.

The ERC, designed to support businesses during the pandemic, offered relief to those facing operational disruptions or significant revenue declines. However, the IRS implemented a moratorium on processing new claims in September 2023, aiming to scrutinize existing claims more rigorously. Despite the pause, over $1 billion in claims have been disbursed, underscoring the urgency of ongoing compliance efforts.
The VDP, which concluded on March 22, allowed businesses to rectify improper ERC receipts with a 20% discount. The IRS remains open to reopening the program contingent on congressional action to extend the statute of limitations for ERC claims.

Deputy Treasury Secretary Wally Adeyemo urged Congress to empower the IRS to combat fraud while safeguarding taxpayer and small business interests. Meanwhile, the Special Withdrawal Program offers relief to employers with unprocessed claims, allowing them to retract erroneous filings without incurring penalties.

Enforcement actions have been robust, with the IRS initiating audits on thousands of ERC claims. Criminal investigations have resulted in federal charges, highlighting the agency’s commitment to curbing fraudulent activity. Efforts to identify abusive tax promoters and preparers persist, with the IRS receiving numerous referrals for further scrutiny.

As the IRS continues its pursuit of compliance, small businesses, entrepreneurs, and freelancers are reminded of the importance of accurate ERC claims. With ongoing enforcement measures and voluntary programs, the agency remains steadfast in its mission to safeguard taxpayer funds and uphold integrity in pandemic relief efforts.

Source ( Journal of Accountancy News).