IRS Commissioner Daniel Warfel speaks at an IRS event in McLean, Virginia, on August 2, 2023.
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The IRS has sent more than 20,000 denial letters to taxpayers who mistakenly applied for pandemic-era tax breaks as it continues to crack down on “questionable” tax returns.
The Employee Retention Credit (ERC), created to help small businesses during the COVID-19 pandemic, is worth thousands of dollars per eligible employee. However, the tax cut triggered a wave of companies encouraging small businesses to unfairly claim credits, and the agency suspended processing new applications in September after a “surge in suspicious claims.”
“Given the aggressive marketing we have seen with this credit, it is not surprising to see claims that clearly violate legal requirements,” IRS Commissioner Danny Wuerffel said in a statement Wednesday. said.
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Starting this week, ineligible taxpayers will begin receiving copies of Letter 105 C for disallowed claims. Later this month, the IRS plans to announce a “voluntary disclosure program” for taxpayers who mistakenly applied for the credit. The agency rejects applications from organizations that do not exist or that did not employ paid employees during the eligibility period.
“The steps we are taking today are part of a series of initial steps in our compliance efforts in this area,” Werfel said. “More letters will be issued in the near future, including letters of denial and letters requesting the return of funds that were incorrectly requested or received.”
The announcement comes less than two months after the IRS announced a special withdrawal process for small businesses that mistakenly applied for credit to avoid repayments, interest and penalties.
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