IRS to target ‘unscrupulous’ tax preparers amid crackdown of small business tax credit

The plan is part of the agency’s elevated focus on employee retention credit claims, according to April Walker, lead manager for tax practice and ethics with the American Institute of CPAs.

A pandemic-era tax break, the employee retention credit, or ERC, was designed to support small businesses that kept employees on payroll during shutdowns or revenue declines in 2020 and 2021.

Worth thousands per employee, the program sparked a cottage industry of specialist firms pushing businesses to amend payroll returns to claim the complicated tax break.

Roughly one week ago, the IRS announced plans to halt processing for the popular credit amid a “surge of questionable claims,” a move that the AICPA applauded. The processing pause for new claims will last at least through the end of 2023.

Meanwhile, the agency has also announced plans to reduce the number of audits on lower-income filers, while targeting unpaid taxes from higher earners, partnerships and large corporations.

In the same letter, Werfel shared IRS plans to “substantially” decrease the volume of so-called correspondence audits, or exams conducted by mail, for certain credits. He included the earned income tax credit, a tax break claimed by low- to moderate-income filers, which has been prone to mistakes due to complex eligibility requirements.

“It’s long been recognized that correspondence audits have a lot of problems,” said Chuck Marr, vice president for federal tax policy at the Center on Budget and Policy Priorities, noting that many filers don’t receive or understand the notices.

During fiscal year 2020, more than $16 billion of the…