Protecting Your Business: IRS’s Efforts Against COVID Tax Fraud

As we navigate through the complexities of tax season, businesses need to stay informed about recent developments in tax policies and enforcement. The Internal Revenue Service (IRS) has recently announced significant strides in combating fraudulent claims related to pandemic-era tax refunds, mainly focusing on the Employee Retention Credit (ERC) program.

Understanding the Issue

The ERC program was established to aid struggling businesses during the COVID-19 crisis. However, it quickly became apparent that fraudulent claims were rampant, with third-party promoters misleading taxpayers into claiming credits they weren’t eligible for. This led to a substantial loss of government funds and added complications for both taxpayers and the IRS.

IRS Enforcement Efforts

Recognizing the severity of the situation, the IRS took proactive measures to address the issue. Over the past six months, the agency has implemented various initiatives to clean up fraud within the ERC program. These efforts have successfully protected over $1 billion in erroneous tax refunds.

To further tackle the problem, the IRS temporarily paused the processing of new claims in September. Additionally, they introduced two relief programs – a withdrawal program and a voluntary disclosure program – for businesses that incorrectly claimed the credit.

What You Need to Know

If your business received a refund but has yet to be contacted by the IRS regarding potential errors, you have the option to participate in the voluntary disclosure program. Under this program, you will only pay back 80% of the credit and provide information about the preparer who assisted with your tax return.

While initially indicating that the settlement program wouldn’t be extended, the IRS has now expressed openness to reconsider, depending on congressional actions regarding the statute of limitations for ERC claims.

Looking Ahead

As we move forward, it’s crucial for businesses to remain vigilant. The IRS plans to send out additional letters in the coming months for tax year 2021, with larger claims under scrutiny. These letters will provide detailed explanations of why the ERC claim is believed to be incorrect, offering businesses the opportunity to respond.

Additionally, the IRS has initiated numerous criminal cases against entities involved in fraudulent activities related to COVID-19 tax refunds. This underscores the seriousness of the issue and highlights the importance of compliance with tax regulations.

How Tonneson Can Help

Tonneson + Co is committed to keeping you informed about developments that could impact your business. We encourage you to review your tax filings carefully, ensuring compliance with all relevant regulations. Should you have any questions or concerns about pandemic-era tax relief programs or IRS enforcement efforts, don’t hesitate to contact us. Together, we can navigate these challenges and protect your business’s financial well-being.