When the COVID-19 pandemic disrupted life in his small Missouri town, Scott Volner, a small-business owner, worked hard to keep his employees on the payroll despite a drop in revenue. He fell victim to telemarketers claiming to be tax service specialists offering him an IRS pandemic relief credit. Volner ended up signing with a company that promised to handle all the paperwork for him and received a $330,000 check, which he later learned he was not eligible for. The Employee Retention Tax Credit (ERC) has specific criteria, including being available only to businesses in states with mandatory shutdowns. Volner now has to figure out how to repay the money he has already spent, and he feels it will be a long process.
The IRS has acknowledged that the Employee Retention Tax Credit program has been plagued by issues, resulting in claims totaling far more than the estimated $55 billion cost to Congress. Estimates now put the cost at $250 billion, and claims are still being filed. Unscrupulous promoters have taken advantage of the program, filing bad claims on behalf of unqualified businesses and taking a significant portion of each payout. There have also been cases of outright fraud, including a situation involving a convicted murderer using ERC claims to steal over a million dollars for personal expenses.
Fraudsters have targeted various pandemic relief programs, resulting in losses of up to $280 billion. The Justice Department has charged around 3,500 individuals and seized $1.4 billion in stolen COVID-19 relief funds. However, the IRS and other enforcement agencies lack the resources to catch even a small percentage of these criminals. The IRS is working to stop the bleeding, suspending ERC claim processing and launching audits and criminal investigations to address fraud and ineligibility. The focus is on promoters, some of whom have been charged criminally.
Scott Volner and Michelle Hance are just a few of the many individuals who have been misled by ERC promoters, resulting in them receiving money they were not eligible for. The promoters, who in some cases are unreachable or have gone out of business, profited from the situation while leaving taxpayers to deal with the consequences. The IRS is continuing to investigate ERC promoters and aid affected businesses in recovering funds if they were deemed ineligible. Efforts are also being made to recover money from fraudulent claims and to urge Congress to pass legislation to extend the audit period for claims from 2020.
Larry Gray, a CPA in Missouri, was one of the first to warn of potential fraud related to the ERC program. He highlighted the lack of oversight and guidance that allowed fraud to occur, as well as the swift disbursement of funds without proper verification of eligibility. Third-party promoters, like Bottom Line Concepts, marketed the tax credit heavily, promising businesses large returns. However, many businesses did not qualify for the credit, resulting in confusion and misinformation among applicants. The responsibility for the ERC mess is seen to extend to the federal government, as well as promoters who took advantage of the system.
Scott Volner used the funds he received from the ERC to support his business and keep his employees on the payroll. He is now working with the IRS to establish a repayment plan for the money he received and was not eligible for. The challenges presented by the ERC program and the actions of unscrupulous promoters have left many small-business owners in a difficult position, facing potential repayment of funds they believed were rightfully obtained. The IRS is taking steps to address the issue and prevent further abuse of pandemic relief programs in the future.
