I.R.S. Extends Freeze of Pandemic-Era Tax Credit Amid Widespread Fraud

An internal analysis conducted by the agency found that up to 90 percent of claims are potentially fraudulent.

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Daniel Werfel, the Internal Revenue Service commissioner, warned that the agency’s enforcement teams are scrutinizing claims closely and investigating illicit tax preparation companies.

The Internal Revenue Service is expanding its efforts to crack down on fraud in a pandemic-era tax credit program following an internal analysis that found a majority of outstanding claims appeared to be improper.

The agency said on Thursday that it was extending its freeze on new claims for the program, the Employee Retention Tax Credit, which was created in 2020, during the throes of the pandemic and allows businesses to collect up to $26,000 for each employee on its payroll. The I.R.S. is also denying tens of thousands of claims that it determined to be erroneous.

Daniel Werfel, the I.R.S. commissioner, warned that the agency’s enforcement teams are scrutinizing claims closely and investigating illicit tax preparation companies that have been encouraging ineligible taxpayers to apply.

“The I.R.S. remains deeply concerned about how many taxpayers have been misled and deluded by promoters into thinking they’re eligible for a big payday,” Mr. Werfel said.

The tax benefit was created as part of the initial $2 trillion pandemic relief legislation signed into law by President Donald J. Trump. It offered businesses thousands of dollars per employee if they could show that Covid-19 had reduced their incomes and that they were continuing to pay workers.

In many cases, Mr. Werfel said, applicants were filing claims for businesses that did not even exist or falsifying the number of employees on their payrolls.

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