During testimony before a House Appropriations subcommittee on May 7, IRS Commissioner Danny Werfel said almost $400 million in unpaid employee retention credit (ERC) claims have been withdrawn by taxpayers since the agency put a moratorium on processing new claims last September.

In addition, Werfel told lawmakers on the panel that the IRS has received $777 million from businesses that voluntarily returned the tax credit after being found ineligible.

“After filing season, we were going to conduct an assessment of our inventory to figure out the best way to proceed. Unfortunately, there are a lot of ineligible claims in our inventory, and who is suffering from that? The eligible claims,” Werfel told members of the House Appropriations Subcommittee on Financial Services and General Government on Tuesday morning.

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The statistics Werfel brought up during the hearing this morning are consistent with what he said in March—that the IRS had protected more than $1 billion in revenue in six months as a result of increased enforcement surrounding questionable ERC claims.

The IRS is in the midst of a crackdown on fraudulent ERC claims resulting from pop-up businesses, or “ERC mills,” marketing the program to employers that don’t qualify for the tax relief.

The refundable tax credit, which was authorized by the $2.2 trillion coronavirus package known as the Cares Act, aimed to motivate employers to keep workers on staff during the early days of the pandemic as unemployment rates sharply increased.

Because of the suspicious nature of some ERC claims, the IRS last May alerted business owners about ERC scams. Calling it a “barrage of aggressive broadcast advertising, direct mail solicitations, and online promotions,” the IRS said ERC promoters are “wildly misrepresenting and exaggerating who can qualify for the credits.”

On July 26, 2023, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious ERC claims.

Then on Sept. 14, Werfel ordered an immediate moratorium on the ERC program, saying the agency “could no longer tolerate growing evidence of questionable claims pouring in.”

The IRS had hinted in March that it might resume processing new ERC claims received after the September moratorium sometime later this spring, but Werfel told the House Appropriations subcommittee today that he couldn’t commit to a timeline of when that work might start back up.

He said the IRS is working with the Taxpayer Advocate Office to move “hardship cases”—struggling businesses that are eligible for the ERC and have submitted claims for the credit but have yet to receive funding—to the front of the line. Werfel added that the agency is urging businesses that know they are ineligible for the credit to withdraw their claims.

“I want to work to make sure that those that have the most urgent need—while we’re continuing to sort through what is a very challenging situation—that we address those quickly,” he said. “The intention is to find the eligible ones and get [the credit] to them as quickly as possible.”