Employee Retention Credit Reminder: Voluntary Disclosure Ends March 22

IRS Action Regarding Fraudulent Employee Retention Credit (ERC) Claims

A reminder of the ongoing IRS efforts to react to and reduce overly aggressive and fraudulent ERC claims, including the imminent deadline of March 22 to apply for the ERC Voluntary Disclosure Program.

On September 14, 2023, the IRS announced A Moratorium on Processing ERC Claims indicating that ERC claims filed after that date would not be processed before the end of 2023. Included in the announcement was a Special ERC Claim Withdrawal Program.

Then on December 21, 2023, the IRS launched a new ERC Voluntary Disclosure Program, which provided that if an ERC claim applicant believed the claim was erroneous, then they could agree to repay 80% of the ERC refund received. The program would be available until March 22, 2024. 

On February 13th, the IRS released 7 Warning Signs Employee Retention Credit claims may be incorrect urging businesses to confirm their eligibility and resolve any issues by the March 22 date.

Additional ERC News

In other ERC-related news, in early 2024, the House of Representatives passed the Tax Relief for American Families & Workers Act of 2024, which included these significant ERC provisions:

• Would end the ERC program on January 31, 2024 – under current law, taxpayers may submit amended returns to claim ERC for 2020 until April 15, 2024, and for 2021 until April 15, 2025.
• Increases penalties for certain ERC "promoters" determined by the contingency fee test based on the amounts of gross receipts the promoter received from ERC contingency fees.
• Extends the statute of limitations for ERC claims to 6 years rather than the normal 3 years.

Comment

The IRS clearly continues to address fraudulent ERC claims, notifying taxpayers of disallowed claims and having thousands of pending ERC claim audits. Fortunately, the IRS also established the ERC Voluntary Disclosure Program, which provides an opportunity for applicable taxpayers to repay a portion of a fraudulent ERC refund and requires action by March 22, 2024. 

Please contact your Herbein tax adviser if you have questions regarding or are interested in applying for the ERC Voluntary Disclosure Program. Also, the ERC-VDP information on the IRS website warns that if you willfully claimed an ERC that is fraudulent or if you assisted or conspired in such conduct, applying to the ERC-VDP will not exempt you from potential criminal investigation and prosecution. Therefore, if applicable, prior to applying for the ERC-VDP, it may be prudent to consult your legal counsel regarding potential criminal implications, especially since attorney/client communications are privileged.

Finally, another more significant ERC issue is the uncertainty regarding the enactment of the ERC provisions included in the Tax Relief for American Families & Workers Act of 2024.

Herbein will monitor the status of this tax legislation and all other ERC developments as we continue to process correct and viable ERC claims.

Article Contributed by Barry Groebel.