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Waste of the Day: Pandemic Tax Credits Turn into Free-For-All

The pandemic tax credit system for retaining employees of shut-down businesses is rife with fraud and arguablyh designed that way.

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Topline: Up to 90% of claims submitted for the pandemic-era Employee Retention Tax Credit show an “unacceptable level of risk” of containing errors or deliberate fraud, according to a press release from the IRS.

Pandemic tax credit system rife with fraud

Key facts: Business owners can claim tax refunds for up to $28,000 in wages paid to each employee between March 2020 and December 2021 if their business was shut down by the government or saw its revenue decline by at least 20% during the pandemic.

The tax credits had strict limits when they were created in 2020 but were expanded last year. That opened the floodgates for an extra $86 billion in claims, and the IRS paused applications in September because they simply couldn’t keep up with all the paperwork.

Between 10% and 20% of the claims are in what the IRS calls the “highest-risk group,” which show “clear signs” of errors. An additional 60% to 70% also show “risk indicators.”

Waste of the Day Pandemic Tax Credits Turn into Free-For-All
Waste of the Day 7.9.24 by Open the Books

The IRS has already canceled $2 billion from erroneous claims, according to the press release. It has also opened 450 criminal cases into potentially fraudulent claims worth $7 billion. Thousands more are currently being audited, and there are 1.4 million claims waiting to be processed.

Search all federal, state and local government salaries and vendor spending with the AI search bot, Benjamin, at OpenTheBooks.com.

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Critical quote: IRS Commissioner Danny Werfel blamed most of the issues on private tax companies that he says “misled” ineligible businesses into applying for the credits.

These claims are clogging the system for legitimate taxpayers. We worry that ending the moratorium might trigger a gold rush by aggressive marketers that could lead to a new round of improper claims.

Repeated extensions

Background: When the tax credit was first established in 2020, the Congressional Budget Office estimated it would cost $55 billion.

Since then it’s been extended three times, and now the nonprofit Committee for a Responsible Federal Budget estimates it will cost over $550 billion unless changes are made. $230 billion had been paid out at the end of 2023.

Recent estimates also show the federal government lost about $1 trillion to fraud during the pandemic, but only $1.4 billion has been recouped.

Summary: A program once meant to help the most vulnerable American small businesses is now home to billions of dollars in fraudulent claims.

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The #WasteOfTheDay is brought to you by the forensic auditors at OpenTheBooks.com.

This article was originally published by RealClearInvestigations and made available via RealClearWire.

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Adam Andrzejewski (say: Angie-eff-ski) is the CEO/founder of OpenTheBooks.com. Before dedicating his life to public service, Adam co-founded HomePages Directories, a $20 million publishing company (1997-2007). His works have been featured on the BBC, Good Morning America, ABC World News Tonight, C-SPAN, The Wall Street Journal, The New York Times, USA Today, FOX News, CNN, National Public Radio (NPR), Forbes, Newsweek, and many other national media.

Today, OpenTheBooks.com is the largest private repository of U.S. public-sector spending. Mission: post "every dime, online, in real time." In 2022, OpenTheBooks.com captured nearly all public expenditures in the country, including nearly all disclosed federal government spending; 50 of 50 state checkbooks; and 25 million public employee salary and pension records from 50,000 public bodies across America.

The group's aggressive transparency and forensic auditing of government spending has led to the assembly of grand juries, indictments, and successful prosecutions; congressional briefings, hearings, and subpoenas; Government Accountability Office (GAO) audits; Congressional Research Service (CRS) reports; federal legislation; and much more.

Our Honorary Chairman - In Memoriam is U.S. Senator Tom Coburn, MD.

Andrzejewski's federal oversight work was included in the President's Budget To Congress FY2021. The budget cited his organization by name, bullet-pointed their findings, and footnoted/hyperlinked to their report.

Posted on YouTube, Andrzejewski's presentation, The Depth of the Swamp, at the Hillsdale College National Leadership Seminar 2020 in Naples, Florida received 3.8 million views.

Andrzejewski has spoken at the Columbia School of Journalism, Harvard Law School and the law schools at Georgetown and George Washington regarding big data journalism. As a senior policy contributor at Forbes, Adam had nearly 20 million pageviews on 206 published investigations. In 2022, investigative fact-finding on Dr. Fauci's finances led to his cancellation at Forbes.

In 2022, Andrzejewski did 473 live television and radio interviews across broadcast, major cable platforms, and radio shows. Andrzejewski is the author of The Waste of the Day column at Real Clear Policy. The column is syndicated by Sinclair Broadcast Group, owners of nearly 200 ABC, NBC, CBS, and FOX affiliates across USA.

Andrzejewski lives in Hinsdale, Illinois with his wife Kerry and three daughters. He is a lector at St. Isaac Jogues Catholic Church and has finished the Chicago Marathon eight times (PR 3:58.49 in 2022).

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