NEW YORK — The Internal Revenue Service said Thursday that it had reviewed 1 million claims for the employee retention credit totaling $86 billion and found that a “vast majority” were at risk of being improper.
The credit was designed to help businesses retain employees during pandemic-era shutdowns, but it quickly became a hotbed of fraud: Complex eligibility requirements led scammers to target small businesses, offering to help them apply for the credit if they paid a fee, even if they didn’t qualify.
The IRS said about 10% to 20% of the 1 million applications showed “signs of obvious error,” and tens of thousands of them will be rejected in the coming weeks, while another 60% to 70% are deemed “unacceptable risk of impropriety” and will be further evaluated.
“With the completion of this investigation, the IRS has gained new insights into high-risk activity in the Employee Retention Credit and confirmed widespread concerns about a large number of improper claims,” IRS Commissioner Danny Wurfel said in a statement. “We will now begin additional work to use this information to reject billions of dollars in clearly improper claims and to make payments to assist taxpayers whose claims are fine.”
About 10% to 20% have been determined to be low risk, and the IRS will begin processing those claims. The first payments to this group are expected to begin later this summer.
The IRS stopped processing new claims in September and announced Thursday that the suspension on Employee Retention Credit claims filed after Sept. 14, 2023, will continue.
The IRS said businesses can go through the claim withdrawal process if they need to ask the IRS not to process credit claims for tax periods that have not yet been paid.
