Understanding ERC Claims: Legitimacy, Investigations, and the Current Landscape

The Employee Retention Credit (ERC) has become a crucial lifeline for many businesses during the pandemic, offering financial support to help retain employees. However, as the volume of claims has surged, so have concerns regarding the legitimacy of these claims. In this blog post, we’ll explore the current status of ERC claims, including the percentage deemed legitimate, those under investigation for fraud, and the impact of errors in submissions.

Current Breakdown of ERC Claims

Recent data offers a clearer picture of the ERC claims landscape:

• 20% Legitimate Claims: Only one-fifth of the claims submitted are recognized as legitimate. These claims come from businesses that properly meet all eligibility criteria set by the IRS, ensuring they qualify for the credit based on valid employee retention throughout the pandemic.
• 15% Fraudulent Claims Under CID Investigation: A concerning 15% of claims have been flagged for fraudulent activities and are currently under Criminal Investigation Division (CID) scrutiny. These claims typically involve deliberate misrepresentation or falsification of information related to employee counts or wages.
• 65% Claims with Errors Under Review: The largest segment, making up 65% of submissions, has been filed with errors and is currently under review. This group reflects inaccuracies that could stem from misunderstandings of the eligibility requirements or mistakes in calculations. These errors are primarily responsible for the delays many businesses are experiencing in receiving their funds.

Consequences of Claim Issues

The extensive review process, particularly for the 65% of claims under scrutiny, is significantly impacting the timely distribution of ERC funds. As the IRS devotes resources to examining these claims, legitimate businesses often face frustration due to prolonged processing times.

The claims under CID investigation represent serious consequences for those businesses, as investigations may lead to penalties, repayment of funds, or even criminal charges for those found guilty of fraud.

Conclusion

The current state of ERC claims reveals a complicated scenario for many businesses. With only 20% deemed legitimate, and 15% actively under CID investigation for fraudulent actions, the need for accuracy and compliance has never been more crucial. Meanwhile, the majority of claims—65%—await resolution due to errors, contributing to significant delays in fund disbursement.

To navigate this complex environment, businesses are advised to consult tax professionals who are well-versed in ERC regulations to ensure that their claims are accurate and compliant. Understanding the intricacies of the ERC claims process is vital for businesses to secure the support they need while avoiding potential legal and financial pitfalls.