A recent WSJ article describes how The Internal Revenue Service (IRS) has rejected over 20,000 refund claims for the Employee Retention Credit (ERC), a pandemic-era tax incentive designed to encourage businesses to retain employees. The denials primarily target employers that either didn't exist or didn't have employees during the required period.Â
The ERC has become a focus of scrutiny due to fraudulent or overstated claims, leading the IRS to pause processing new claims and initiate investigations into potentially fraudulent ones totaling over $2.8 billion. Some fraudulent claims involve shell companies, ineligible businesses, or businesses misled by third parties.Â
The IRS plans to guide how employers who received refunds can repay the government if their claims are deemed invalid. The ERC allows employers to receive up to $26,000 per employee, contingent on a specified revenue decline or government-ordered suspension of operations. Legal challenges may complicate IRS efforts to curb questionable claims, as some businesses contest the denial of their ERC claims in court, arguing that IRS guidance violated federal law.
