IRS rejects more than 20,000 refund claims for pandemic-related tax credit

IRS Commissioner Daniel Werfel speaks throughout an IRS occasion on August 2, 2023 in McLean, Virginia.

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The IRS is sending more than 20,000 rejection letters to taxpayers who wrongly claimed a pandemic-era tax break because the company continues its crackdown on “doubtful” filings.

Created to assist small companies in the course of the Covid-19 pandemic, the employee retention credit, or ERC, is value hundreds of {dollars} per eligible worker. However, the tax break sparked a wave of companies pushing small companies to wrongly declare the credit — and the company quickly stopped processing new filings in September amid a “surge of questionable claims.”

“With the aggressive advertising we noticed with this credit, it is not shocking that we’re seeing claims that clearly fall outdoors of the authorized necessities,” IRS Commissioner Danny Werfel said in a statement Wednesday.

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Starting this week, ineligible taxpayers will begin receiving copies of Letter 105 C for disallowed claims. Later this month, the IRS will unveil a “voluntary disclosure program” for taxpayers who wrongly claimed the credit. The company is rejecting filings from entities that did not exist or did not have paid staff in the course of the eligibility interval.

“The motion we’re taking right this moment is a part of an preliminary set of steps in our compliance work on this space,” Werfel stated. “More letters can be going out within the close to future, together with each disallowance letters and letters in search of the return of funds erroneously claimed and acquired.”

The announcement comes much less than two months for the reason that IRS unveiled a special withdrawal process for small companies that wrongly claimed the credit to keep away from reimbursement, curiosity and penalties.

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