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A Stitch In Time Saves Nine

A Stitch In Time Saves Nine

Russian hacker hacking the server in the dark
Senior Director of Strategic Alliances
LexisNexis Risk Solutions - Government

Beware, all businesses who are preparing their income tax returns! Weigh the pros and cons before claiming the employee retention tax credit. Because Congress (which normally runs at a snail’s pace) is racing to wind down this tax. Congress established the program in conjunction with relief promulgated under the CARES Act as an incentive for businesses to keep workers on the payroll. But at a recent congressional hearing, a whistleblower estimated that 95% of these claims being made by businesses were fraudulent. Now the Internal Revenue Service has had their eye on this credit for a while. On September 15, 2023, the IRS announced it was “increasingly alarmed” about potentially abusive submissions for tax credits under the ERC. Should have hit the panic button then.

How did this happen? Fraudsters of course. Aggressive marketers dangled the prospect of enormous refunds to business owners if they would just apply for an ERC. These ERC mills (just as ugly as a puppy mill) promoted the credit online and in television ads, advising small businesses to come to them even if their CPA told them that they do not qualify for the ERC. What was expected to cost the federal government $55 billion has instead ballooned to nearly five times that. U.S. lawmakers are finally feeling some anxiety. Everyone should be feeling some anxiety.

Lawmakers across the political spectrum who rarely agree on little else — from liberal Sen. Elizabeth Warren, D-Mass., to conservative Sen. Ron Johnson, R-Wis. — agree it’s time to close down the program. When both parties agree, we have a problem. The Joint Committee on Taxation estimates that winding down the program more quickly and increasing penalties for those companies promoting improper claims would generate about $79 billion over 10 years. Helpful in recouping losses, but doesn’t nearly make up for the amount that has been stolen.

So, business. Look before you leap! As they say, a stitch in time saves nine. Nine years in jail. Nine thousand dollars in penalties. Nine lives.

Today’s Fraud of the Day is based on article “A COVID-era program is awash in fraud. Congress aims to wind it down and expand the child tax credit” published by The Washington Post on January 27, 2024
When IRS Commissioner Danny Werfel met privately with senators recently, the chairman of the Senate Finance Committee asked for his assessment of a startling report: A whistleblower estimated that 95% of claims now being made by businesses for a COVID-era tax break were fraudulent.

“He looked at his shoes and he basically said, ‘Yeah,’” recalled the lawmaker who posed that question, Sen. Ron Wyden, D-Ore. The answer explains why Congress is racing to wind down what is known as the employee retention tax credit.

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