Tax tips: Dirty Dozen: Beware of aggressive promoters who dupe taxpayers into making questionable Employee Retention Credit claims; risks continue for small businesses, special withdrawal program remains available
WASHINGTON — As part of this year’s Dirty Dozen, the Internal Revenue Service continues to warn businesses and others to stay clear of unscrupulous and aggressive promoters of questionable claims for the Employee Retention Credit (ERC).
These questionable ERC claims often put unsuspecting businesses and other entities in jeopardy of penalties, interest and potentially even criminal prosecution for claiming the ERC when they don’t qualify and aren’t entitled to it.
In day two of the Dirty Dozen series, this latest warning comes as the IRS continues to take special steps to counter aggressive marketing around the ERC, sometimes referred to as the Employee Retention Tax Credit or ERTC. Since the IRS announced a moratorium on processing new claims filed after Sept. 14, 2023, the agency’s compliance efforts on ERC claims have topped more than $1 billion so far since last fall as work continues on a number of efforts to counter questionable claims.
With compliance work on ERC claims continuing to expand through both audits and criminal investigations, the IRS reminded businesses they still have an option to pull back on any unprocessed claims. Businesses should quickly pursue the claim withdrawal process if they need to ask the IRS not to process an ERC claim for any tax period that hasn’t been paid yet.
While this work continues, the IRS continues to urge businesses to carefully review the complex ERC guidelines before submitting a claim. The IRS remains concerned that some ineligible businesses are being encouraged by marketers to submit an incorrect ERC claim; people should contact a trusted tax professional first to avoid potential IRS compliance action in the future.
“We remain concerned that unscrupulous promoters and numerous myths about eligibility for this credit could put well-meaning businesses at risk,” said IRS Commissioner Danny Werfel. “Before anyone files an Employee Retention Credit claim, they should carefully review the eligibility guidelines and talk to a trusted tax professional. Relying on a marketer who is looking to take a hefty percentage fee of the potential claim adds risk for well-meaning businesses given the ongoing IRS compliance work.”
The IRS took significant compliance steps regarding the ERC program after the well-intentioned pandemic-era program came under aggressive, misleading marketing that oversimplified or misrepresented eligibility rules. Promoters pushed more applicants into the program, frequently by taking a percentage of the payout.
When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order, or had a decline or significant decline in gross receipts during the eligibility periods.
Started in 2002, the IRS' annual Dirty Dozen campaign lists 12 scams and schemes that put taxpayers, businesses and the tax professional community at risk of losing money, personal information, data and more. While the Dirty Dozen is not a legal document or a formal listing of agency enforcement priorities, the education effort is designed to raise awareness and protect taxpayers and tax pros from common tax scams and schemes.
ERC withdrawal program
The IRS is also continuing to accept and process requests to withdraw an employer’s full ERC claim under a special withdrawal process. The IRS has already received more than $250 million in withdrawals as the agency continues intensifying audits and criminal investigation work in this area.
This withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that have not yet been paid can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible. They can also withdraw their claim if they’ve received a check but have not yet deposited or cashed it.
The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.
The IRS continues to encourage employers who submitted claims to review the ERC requirements and talk to a trusted tax professional about their eligibility amid misleading marketing around the credit.
For more information on ERC eligibility, taxpayers can see the ERC frequently asked questions and the ERC Eligibility Checklist, which is available as an interactive tool or as a printable guide.
Signs an ERC claim could be incorrect
Recently, the IRS highlighted special warning signs that an ERC claim may be questionable to help small businesses that may need to resolve incorrect claims.
The agency shared suspicious warning signs that could signal future IRS problems involving ERC claims. Built on feedback from the tax professional community and IRS compliance personnel, the warning signs center on misinformation some unscrupulous ERC promoters used.
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Tax Tips: IRS Criminal Investigation releases updated COVID fraud statistics on 4th anniversary of CARES Act; nearly $9 billion investigated
WASHINGTON – Four years after the enactment of a key pandemic-era law, the Internal Revenue Service released updated numbers showing Criminal Investigation (CI) has investigated 1,644 tax and money laundering cases related to COVID fraud potentially totaling $8.9 billion, with well over half that amount coming from cases opened in the last year.
These cases include a wide range of criminal activity, including fraudulently obtained loans, credits and payments meant for American workers, families and small businesses under the Coronavirus Aid, Relief and Economic Security (CARES) Act.
As of Feb. 29, 795 people have been indicted for their alleged COVID-related crimes and 373 individuals have been sentenced to an average of 34 months in federal prison. During the last four years, CI has obtained a 98.5% conviction rate in prosecuted COVID fraud cases.
“The work by IRS Criminal Investigation provides a vital role in protecting against fraud and serves a key part in the agency’s wider efforts to ensure fairness in the nation’s tax system,” said IRS Commissioner Danny Werfel. “Protecting taxpayers against fraud in pandemic-era programs is just one example of the important role that CI plays in the law enforcement community. A healthy budget for the IRS helps us get the job done, and the work of CI provides a critical safety net to protect the nation against fraud.”
Looking ahead, CI’s ongoing fraud-protection work will be bolstered by the additional funding the IRS received through the Inflation Reduction Act, which is providing the agency with additional resources to ensure fair enforcement of the laws as well as improved taxpayer service, new technology and wider IRS transformation efforts.
“In the last year alone, we have opened nearly 700 new COVID fraud investigations that collectively add up to $5 billion in potential fraud,” said CI Chief Guy Ficco. “While COVID may no longer be top of mind to the average American when they wake up, the fraud committed through these different programs is very much top of mind to CI. Our special agents continue to seek out fraudsters who stole money from government loan programs for their personal gain.”
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Tax Tips: Where’s My Refund tool makes it easy to track the status of a federal tax return
Taxpayers can check the status of their refund easily and conveniently with the IRS Where's My Refund tool at IRS.gov/refunds.
Refund status is available within 24 hours after the taxpayer e-filed their current year return. The tool also gives the taxpayer a personalized refund date after the IRS processes the return and approves the refund.
Where’s My Refund tool updates
Recent updates to the tool mean fewer taxpayers will need to call the IRS. These include:
• Messages with detailed refund status in plain language.
• Notifications that tell taxpayers whether the IRS needs additional information.
How to get started with Where's My Refund
To use the tool, taxpayers need their:
• Social Security number or Individual Taxpayer Identification number.
• Filing status.
• Exact amount of the refund claimed on their tax return.
Status of refunds
The tool shows three statuses:
• Return received.
• Refund approved.
• Refund sent.
When the status changes to "refund approved," the IRS is preparing to send the refund, either as a direct deposit to the taxpayer's bank account or directly to the taxpayer by a check in the mail to the address on their tax return.
When to check for status changes
Taxpayers don't need to check their refund status more than once a day. The IRS updates Where's My Refund overnight in most cases. Calling the IRS won't speed up a tax refund. The information available on Where's My Refund is the same information available to IRS telephone assistors. Taxpayers should allow time for their bank or credit union to post the refund to their account or for it to arrive in the mail.
Timing of refunds
The IRS issues most refunds in fewer than 21 days. Some tax returns require more time to review, and this can delay a refund. It takes longer to process a return if:
• The tax return has errors, requires additional review or is incomplete.
• The return needs a correction to the Earned Income Tax Creditor Additional Child Tax Credit.
• The taxpayer filed their tax return on paper.
• The taxpayer filed an injured spouse
The IRS will contact taxpayers by mail if more information is needed to process a return.
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