When the pandemic upended daily life in a small Missouri town, small business owner Scott Volner did everything he could to keep his employees on the payroll, even as his income decreased.
Then I started being bombarded by telemarketers claiming to be “tax services experts” who told me I was eligible for special IRS pandemic relief credits. After hundreds of phone calls and emails, he signed a contract with a company and agreed to pay a 10% commission. Eventually he received his $330,000 check. That money was what he put into his own business.
“They advertise it and they also offer a service where they put together the whole package for you so you don't have to fill out any forms,” said Volner, who owns a fertilizer company in Rolla, Missouri.
However, it turned out that Mr. Volner was not eligible for a program known as the Employee Retention Tax Credit (ERC), which has very specific and narrow criteria. First, the credit is only available to business owners based in states where mandatory closures occurred.
Mr. Volner now has to figure out how to repay the money he has already spent.
“It's going to be a long, hard road to repay this in full,” said Mr. Volner, who used a company called ERC Specialists, which did not respond to requests for comment.
Ms. Volner is one of tens of thousands of people caught up in the latest pandemic relief debacle. The IRS has acknowledged that its debacle is costing taxpayers hundreds of billions of dollars more than they should have.
Congress said the employee retention tax credit would cost about $55 billion, but new estimates put the cost at $250 billion and claims are still pouring in.
IRS officials say the program is designed to reduce one-third of each payment while filing what the IRS commissioner called a “tsunami of malicious claims” on behalf of businesses that never qualified. It is said to be attracting unscrupulous promoters. They say there is also a significant amount of outright fraud by people lying on their applications.
“The problem is that there are promoters trying to qualify small businesses and trying to make them believe they qualify for something they don't qualify for,” IRS Commissioner Danny Wuerffel said in an interview. . “We are very concerned that promoters and marketers are essentially trying to scam small businesses.”
It wasn't just promoters and marketers who tried to defraud the government. A convicted murderer in a California prison is accused of using the ERC to orchestrate a scheme and steal more than $1 million, some of which was spent partying in a $9,000-a-night penthouse in Las Vegas. He opened the book and was sending relatives home by plane. A private jet, according to court documents.
Werfel said the IRS has discovered tens of thousands of claims against businesses that did not exist or had no employees during the pandemic.
“Unfortunately, there are ways to deceive the IRS,” he acknowledged.
The ERC joins the list of pandemic relief programs looted by fraudsters, with losses reaching $280 billion, enough money to fund the FBI's annual budget for 25 years. And experts say there aren't enough FBI or other criminal investigators to catch even 1% of scammers.
The Justice Department announced last week that it had indicted about 3,500 people and seized $1.4 billion in stolen COVID-19 relief funds, a fraction of the estimated amount of fraud.
Werfel, who was not the IRS commissioner when Congress created the program, explained that the dynamic that exists in all pandemic relief programs – the desire to withdraw funds quickly – has led to less scrutiny of claims. did.
“When you are in a serious situation like a pandemic or an emergency, there is always a balance between 'getting funds to the people who need it right away' and asking for large amounts of additional documentation and additional evidence. “You have to,” he says. “There are certainly things we need to learn and improve in the future to prepare for the next crisis or emergency.”
The IRS is scrambling to stop the bleeding and recover as much money as possible.
The agency said it had suspended the processing of ERC complaints and launched thousands of audits and at least 400 criminal investigations to pursue disqualifications and wrongdoing. The IRS said it is also targeting promoters, with six of them facing criminal charges.
So far, no charges have been filed against the major promoters who blanketed TikTok with ads. Some of these companies have used celebrities such as Kevin O'Leary of “Shark Tank” and Ty Burrell, who played father Phil Dunphy on ABC's “Modern Family,” to raise awareness about the tax credit. There were also companies.
No comment was received from either party.
“I'm angry. It's frustrating and it's making things worse on so many levels. It's too much for a marketing company to be involved in this,” said Michelle Hance, who runs a small audio-visual business in Missouri. Because they had great authority.”
She said she registered for a tax credit through Innovation Refunds, received $13,000 from the federal government, and recently had to pay it back. She said she paid the promoter 25% of what the IRS paid her, but she is now clear that she did not qualify, so she is now mistaken. She says she feels that she is being treated as such.
“The promoters got rich,” Werfel told NBC News. “And if you're a taxpayer and you say, 'Promoter, you said there's no risk,' the promoter is gone. They're abandoning you.”
Innovation Refans has reported two layoffs in the past two months at its Des Moines, Iowa, office, according to state labor records.
An Innovation Refunds spokesperson said in a text message that if a business owner qualifies for an ERC and the owner is later determined by the IRS to be ineligible, the company will refund the fees collected to customers. Stated.
“Innovation Refandos is not a taxpayer,” a spokesperson wrote. “The independent tax experts that Innovation Refunds refers clients to will determine the ERC eligibility of the companies they serve. If the independent tax experts determine that the funds should be returned to the IRS, we will We fully support that decision.”
A spokesperson said if a business is found to be ineligible, they can contact Innovation Refund “by email” to receive a refund.
Werfel said IRS oversight of ERC promoters will continue.
“We are working with tax experts to help alert us to the types of promoters who are promoting this type of false claims activity,” he said. “A criminal investigation related to approximately $3 billion in false claims is ongoing.”
He said the IRS has recovered $500 million from fraudulent claims and is urging Congress to pass legislation to extend the audit period. Without it, the IRS would not be able to review claims from 2020.
Congress is also considering a bill to abolish the ERC completely, but it has stalled amid lobbying efforts to keep it in place. Innovation Refunds spent $720,000 lobbying Congress last year, according to Open Secrets, a website that publishes lobbying disclosure records.
The company told CNBC it has processed $7 billion in claims.
Larry Gray, a certified public accountant in Rolla, Missouri, was among those who warned early on that ERC's fraud could become a major problem. He accessed YouTube from his office in 2020 and sounded the alarm. He also helped Volner and Hans learn that they were not eligible for credit.
Gray says the federal government is to blame for the mess.
“The IRS has a lot of responsibility,” he said. “Congress has a responsibility. The Treasury Department should have provided more guidance.”
Gray said he realized early on that anyone could easily fool the program.
“You could put in a fraudulent federal ID number. You could also put in and send in fraudulent employees. …Because everyone is focused on getting the money out, and getting the money. Because we haven't checked to see if you qualify.”
Soon, third-party promoters emerged touting the tax cuts.
One of the most prolific advertisers is Josh Fox's Miami-based Bottom Line Concepts, which brags online that it has millions of dollars in revenue to clients and tells them they have to apply for credit. They told companies that if they did so, they would be missing out on opportunities. In a clip posted to TikTok, Fox told an interviewer that he was surprised at how few businesses and elected officials knew about the tax credit.
“I wonder how many of the politicians we talk to don't know about this program, and the residents, the people who run businesses in their towns, typically receive hundreds of thousands of dollars, sometimes hundreds of thousands of dollars, from the federal government. It's amazing when you explain that you can get millions of dollars back,'' he said.
Mr. Fox did not respond to multiple messages left at his Miami office.
Many were not eligible. In fact, the most common method considered when a business is severely affected by a government-mandated shutdown has not been applied in many red states where there are few forced closures, Gray said. Ta.
“They don't seem to be getting the right tests or asking the right questions,” Gray said.
But for now, when the IRS goes after companies that don't qualify, it's the companies that are in trouble, not the promoters.
Scott Volner used the $330,000 he received from the credit to keep his employees on payroll and expand his business, which chemically extracts the zinc and manganese inside used alkaline batteries and recycles them into fertilizer.
Now he's trying to convince the IRS to put him on a phased repayment plan.
Mr. Volner said he has not spoken to an ERC expert since learning he did not qualify for the tax credit because he did not think the tax credit would do anything.
“I feel betrayed because I think I was drawn into it,” he said.
