It’s no surprise that the IRS is committed to combating ERC fraud, as the payments to businesses can be hefty.
Since 2020, the IRS has received nearly 3.6 million ERC returns, with more than 600,000 ERC applications in the pipeline totaling $230 billion in refunds paid, according to the Journal of Accountancy. The outstanding applications are estimated worth another $90 billion to $100 billion.
The 20,000 rejection letters sent out have an estimated total value of $2 billion to $10 billion applied credits, Hylton said as he estimated that some letters were for taxpayers making claims for $100,000 to $500,000.
The agency has also found ERC-related fraud totaling around $3.4 billion and initiated 252 investigations involving another $2.8 billion in potential scams as of the end of July.
The IRS has also created a withdrawal program for taxpayers to request and withdraw any claims. This option is for filers who have applications in the works but have not received a refund or for filers who received a refund they haven’t deposited yet. The option comes without any penalties or charges from the tax agency.
“They are treated as if they were never filed,” the IRS website says.
The IRS has explicitly warned taxpayers of ERC mills and their practices this year. They are often internet pop-up shops without prior CPA or accounting experience and aggressively push small business owners to claim the ERC credit. They get significant cuts of the tax refund their clients receive, so they are incentivized to convince ineligible and unaware business owners to file for the credit.
Experts in the matter have previously told Yahoo Finance that the IRS is likely building criminal cases against some of these ERC internet companies that are filing numerous ineligible claims. But whether the IRS can claw back ineligible refunds that have been paid out remains difficult.
“The IRS probably will start looking at getting that paid back,” Hylton said. “But this may be a challenge because a lot of businesses have actually spent those funds.”
