IRS Slows Refund Payments for Pandemic-Era Tax Break

livemint.com:

WASHINGTON—The Internal Revenue Service has slowed the payment of tax refunds to employers under a pandemic-era program, as the agency struggles to combat what it says are fraudulent and overstated claims for the employee-retention tax credit. “We remain deeply concerned about small businesses being scammed and dubious Employee Retention Credit claims being submitted amid aggressive marketing to the business community," the IRS said Tuesday. “The IRS has slowed our processing of these claims to guard against fraudulent or incorrect submissions as we work to enhance our procedures and controls to best protect small-business owners and taxpayer dollars." The announcement marks the government’s biggest step to rein in the cottage industry of employee-retention tax-credit advisers that has emerged in the past few years.

The IRS is likely facing years of disputes and litigation because it is expected to try to claw back some refunds it has issued. Congress created the employee-retention credit, or ERC, in 2020 as part of its response to the coronavirus pandemic. The aim was to reward employers for keeping workers in their jobs.

Eligible employers that experienced revenue declines or had their operations suspended by government orders can get up to $26,000 per employee. The rules for the credit changed several times, and the tax break expired Sept. 30, 2021.

But claims have boomed since then. Under the tax code, employers have up to three years to amend their payroll tax returns and claim the credit. That created an opening for a pop-up industry to bloom.