Read out: Commissioner Werfel Briefs Senate Finance Committee on Employee Retention Credit

Summary

An IRS read out dated Jan. 10, 2024, stating that IRS Commissioner Danny Werfel updated the Senate Finance Committee on the agency's efforts to combat fraud in the Employee Retention Credit (ERC) program. The read out states that the pause in processing ERC claims initiated in September resulted in an immediate 40% decline in average weekly claims, that the IRS would send more than 3,000 new compliance-related letters that month, and that the IRS disallowed around 21,000 pending claims. It also says initial findings show 20,000 claims where the employer received an erroneous or excessive credit. It states that Werfel gave the committee a roadmap for resuming processing and that a specific resumption date has not been determined.

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Read out: Commissioner Werfel Briefs Senate Finance Committee on Employee Retention Credit

Jan. 10, 2024

WASHINGTON– IRS Commissioner Danny Werfel today updated the Senate Finance Committee on the agency's efforts to protect honest taxpayers and combat fraud in the Employee Retention Credit (ERC) program.

Werfel updated the committee on the impact of the pause in processing ERC claims initiated in September following fraud concerns, a step that resulted in an immediate 40% decline in average weekly claims.

"The IRS continues to work hard on Employee Retention Credit issues and protect small businesses from the effects of aggressive promoters," Werfel said. "To help businesses who were pushed into these, we have a special withdrawal program for those with unprocessed claims and a Voluntary Disclosure Program for those who believe they were paid improperly. IRS compliance work continues to accelerate, denying improper ERC claims and expanding compliance efforts on promoters and audits involving billions of dollars. This month, the IRS will be sending more than 3,000 new compliance-related letters to companies with both processed and unprocessed claims. At the same time, we are working to put in place protections against fraud that will eventually allow us to process additional legitimate ERC claims. The IRS will continue working to move forward in this effort, and additional updates on ERC will be coming in the weeks and months ahead."

Werfel informed the committee of continuing processing changes being implemented during the moratorium, including an effort to transcribe fields from amended paper returns to identify tougher to find sources of ineligibility or excessive credit claims beyond initial problem areas, such as failure to pay Form W-2 wages. With more modern scanning technology being deployed, data continues being transcribed on these complex ERC returns, a process that will continue into the spring and critical to help the agency identify areas of concern for additional compliance efforts to protect against fraud.

This effort builds on the IRS disallowance of around 21,000 pending claims from businesses that did not exist during the time for which the credit was being claimed or did not pay W-2 wages. This in addition to initial findings showing 20,000 claims where the IRS has identified the employer received an erroneous or excessive credit that's gone out. In these cases, the agency will reclaim that ERC through normal tax assessment and collection procedures. Work continues in these and other areas.

Werfel also described to the committee how ongoing work to modernize technology using Inflation Reduction Act funds is critical to eliminating the time-consuming manual transcription process the agency has had to undertake to extract data from ERC and other tax returns. The IRS is working to digitize information on pending ERC claims as part of this effort. Improvements in this area this spring will help more quickly detect fraud and allow the IRS to process ERC refunds more quickly for honest taxpayers.

Werfel provided the committee with a roadmap for how the IRS plans to resume processing of its current ERC inventory with strong, new fraud detection measures in place. During the next four months, the IRS plans to complete the transcription of amended paper returns with the help of digitalization and deploy the new risk analysis strategy to identify additional compliance work. These fraud protection measures are necessary before the IRS anticipates resuming processing of claims submitted after the Sept. 14 moratorium. A specific resumption date has not been determined.

Lastly, the Commissioner highlighted the September request from Deputy Secretary of the Treasury Wally Adeyemo for the Treasury Department and IRS to work with Congress on legislative options related to ERC.

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