Small-business owner Scott Volner of Rolla, Missouri, found himself caught up in a pandemic relief debacle when he was targeted by telemarketers claiming to offer IRS pandemic relief credits. Despite Volner not being eligible for the credit known as the Employee Retention Tax Credit (ERC), he ended up receiving and spending $330,000 he wasn’t entitled to. The IRS acknowledges that the ERC program has been costly and prone to abuse, with estimates suggesting the cost may reach $250 billion, far exceeding the initial Congress estimate of $55 billion.
The ERC program has attracted unscrupulous promoters who have taken advantage of businesses by filing fraudulent claims on their behalf. IRS Commissioner Danny Werfel has highlighted concerns about promoters and marketers convincing small businesses they may be eligible for the credit when they are not. The lack of scrutiny in the rush to distribute pandemic relief funds has left room for fraud, with tens of thousands of claims for businesses that may not have even existed or had employees during the pandemic.
Despite efforts by the IRS to investigate and crack down on ineligible claims and fraudsters, losses from pandemic relief programs like the ERC are estimated to be as high as $280 billion. The agency has suspended the processing of ERC claims and launched audits and criminal investigations to address ineligibility and fraud. However, the scale of fraudulent activities has overwhelmed law enforcement agencies, with limited resources to investigate even a small fraction of the cases.
Promoters like Innovation Refunds have faced scrutiny for misleading businesses into believing they qualified for the ERC, resulting in some businesses having to repay funds received from the federal government. While the IRS is working to identify and penalize promoters engaging in fraudulent activities, the responsibility for the mess surrounding the ERC program is seen as shared among multiple stakeholders, including Congress, the IRS, and third-party promoters who marketed the tax break.
Larry Gray, a CPA in Rolla, Missouri, was among those who early on raised concerns about potential fraud in the ERC program. He has highlighted the lack of oversight and guidance from government agencies, including Congress and the Treasury, which may have contributed to the proliferation of fraudulent claims. The IRS has since recovered some fraudulent claims and is pushing for legislation to extend the audit period and repeal the ERC entirely, although lobbying efforts to keep the program alive have stalled progress.
Scott Volner, despite not qualifying for the ERC, used the funds received to support his business, which recycles spent alkaline batteries into fertilizer. He is now facing the challenge of repaying the money he was wrongly given and is seeking to negotiate a repayment plan with the IRS. The aftermath of the ERC debacle underscores the need for better oversight and safeguards in future pandemic relief programs to prevent fraud and protect businesses from falling victim to unscrupulous promoters.
