IRS Recovers $400 Million in Employee Retention Tax Credit Claims

Recent developments from the IRS shed light on the agency’s efforts to manage pandemic-related tax credits. In addition to addressing employee retention tax credit claims, the IRS is also working on building a new e-filing pilot program. Here’s a summary of the latest actions concerning these initiatives. 

Significant Recovery in Employee Retention Tax Credit Claims 

Taxpayers have retracted nearly $400 million in employee retention tax credit claims since the IRS halted new claim processing last fall due to fraud issues, according to IRS Chief Danny Werfel. Additionally, $777 million in incorrectly claimed credits have been voluntarily returned by taxpayers. 

Budget Conversations 

During his appearance before a House Appropriations subcommittee, Werfel defended the IRS’s $12.3 billion budget request for fiscal year 2025, which aligns with spending limits from a recent debt-limit agreement. However, he and other officials argue that this funding is insufficient. The IRS has been using additional funds from the 2022 tax-and-climate law to support its budget. The Biden administration has also proposed an extra $104.3 billion in IRS funding for 2026 to 2034, a request that faces opposition from Republicans. 

Werfel warned that without more funding, the IRS would lose progress in improving taxpayer services, such as reducing call wait times and clearing backlogged returns. The agency expects to deplete its supplemental funding for these services by 2026. 

Pilot Program Developments 

The 2022 tax-and-climate law also funded a study and pilot program for an IRS-run e-filing tool, costing $24.6 million, which is less than anticipated. A decision on the future of this pilot program is expected soon. Werfel highlighted that the Direct File pilot is meant to complement the existing Free File program, which saw a 10% increase in use last year, although participation remains low. 

How Tonneson Can Help 

Navigating the complexities of tax regulations, especially amidst recent IRS developments, requires expert guidance. Rest assured, we’ll continue to keep you informed with timely updates as new developments arise.  

At Tonneson, our experienced team understands the intricacies involved, ensuring compliance and maximizing benefits. Partner with us to maneuver through these changes confidently and optimize your financial outcomes.