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The IRS has intensified its efforts to combat fraudulent employee-retention credit claims by implementing a moratorium on processing new claims, as well as introducing the ERC Voluntary Disclosure Program (ERC VDP) and the ERC claims withdrawal process. These initiatives have resulted in over $1 billion in savings for the United States government.

The ERC VDP allowed employers to return 80% of received ERC payments to the IRS while keeping 20% of claimed funds without facing penalties or interest. The program closed on March 22, 2024, with more than $225 million in returned ERC funds from over 500 employers. Additionally, the IRS reported over 800 pending submissions, indicating potential growth in numbers.

The ERC withdrawal process also saw success, with around 1,800 employers agreeing to withdraw pending ERC claims totaling approximately $251 million as of March 15, 2024. This process remains open after the closure of the ERC VDP, and more employers are expected to take advantage of it in the future.

In addition to the compliance initiatives, the IRS conducted investigations resulting in the assessment of $572 million related to over 22,000 ERC claims. The agency also has thousands of ERC claims under audit, with hundreds of referrals within and outside the IRS. Criminal investigations have been initiated against promoters and employers, totaling over 386 cases related to roughly $3 billion in ERC claims.

While the ERC VDP closed in March 2024, the IRS may reopen the program depending on Congressional actions related to the ERC. However, any reopened VDP would not offer better terms than the initial iteration. Employers with unprocessed legitimate ERC claims may need to wait longer for payment, with the possibility of filing refund lawsuits.

The IRS anticipates ramping up compliance efforts in the future, with increased audits, investigations, and criminal cases. The moratorium on new ERC claims currently has no specific resumption date but is expected to end “sometime in the late spring.” Employers are encouraged to stay informed and compliant with IRS regulations regarding the employee-retention credit.

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