The Internal Revenue Service ceased processing the Employee Retention Credit last month in response to a surge in dubious claims and concerns from tax professionals. The Employee Retention Credit is a support line established by the IRS for small businesses during the pandemic. Employers who qualify can receive up to $26,000 per employee if they can demonstrate that their gross receipts decreased by 50% in 2020 compared to the same quarter the previous year, or by more than 20% in 2021.
Howard Makler, founder and chief executive officer of Innovation Refunds, which assists small business proprietors in filing for the credit, will likely suffer the most.
The Wall Street Journal reported that Innovation Refunds, which was founded in 2019, has reduced its workforce to 270 full-time employees from a high of 1,000, and has ceased submitting new claims. Before resuming the business, Makler stated he would await new IRS regulations.
“Our company is undergoing a strategic shift,” Makler told the Journal. We do not condition our future on rejoining the ERC.
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IRS Delays New Employee Retention Credit Claims to 2024 Due to Fraudulent Promoters
The IRS announced on September 14 that new Employee Retention Credit claims would not be processed until 2024, citing unscrupulous promoters and marketers who misled taxpayers into overwhelming the tax agency with potentially fraudulent claims.
In the three months prior to proclaiming its moratorium, the IRS received 600,000 unprocessed claims, according to its report. IRS Commissioner Daniel Werfel told reporters, “The program has become the focal point of unscrupulous marketing” by “aggressive promoters” who are “pressuring taxpayers to claim a credit for which they may not be eligible.”
The agency paid out nearly $153 billion to more than 866,000 businesses as of last year, according to agency data.
According to the Journal, Innovation Refunds was one of the largest participants in the industry, processing more than $6 billion in claims that could generate approximately $1.5 billion in fees for the company. The company obtains 25% of the refund as a “success fee.” The IRS has issued a warning against utilizing promoters who are compensated through a percentage of claim refunds or who charge substantial up-front fees.
While some accountants have questioned the quality of the firm’s analyses, the Journal reports that fewer than ten clients have reported that their claims are presently being audited. According to Makler, the company stands behind its work.
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