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TIGTA: Government entities improperly claimed pandemic tax credits

| Jul 21, 2021 | Tax Controversies |

According to the Treasury Inspector General for Tax Administration (TIGTA), over 500 governmental entities wrongly applied for the advance payment of employer tax credits that was made available during the COVID-19 pandemic. These entities claimed employer tax credits totaling about $9.2 million, which the IRS is now working to reverse.

The employer tax credits were among the pandemic relief packages passed by Congress in 2020 to help employers who were dealing with the sudden uncertainty of the pandemic. The provisions included:

  • An employee retention credit
  • A sick leave credit
  • A family leave credit

That said, the CARES Act and the Families First Coronavirus Response Act made clear that most government entities were not eligible for these credits.

The IRS discovered 113 government entities that had wrongly claimed employer tax credits as of Sept. 23, 2020, according to TIGTA. Those 113 entities claimed a total of $2 million in erroneous tax credits. Later, the IRS uncovered another 420 government entities who had claimed a total of $7.2 million in credits.

According to the TIGTA report, the IRS now has processes and procedures in place that will help identify mistaken credit claims from governmental entities.

Implementing the pandemic tax credits quickly required a lot of work by the IRS. The report credits the agency with both promoting awareness of the credits among employers and processing the claims quickly. It ran an educational campaign to promote the tax credits’ availability. Then, it developed processes to handle the advance tax credits even though IRS tax processing centers were closed. It began processing claims near the end of April 2020, and it had processed 10.163 credit requests by mid-October, totaling $583 million.

So far, it appears there will be few repercussions for the government agencies who wrongly claimed employer tax credits as long as they cooperate with the IRS and return the money. If your agency is facing penalties, talk to an experienced tax attorney.