ERC Update: Voluntary Disclosure Program / More IRS News

January 18, 2024

ERC Voluntary Disclosure Program – May Require Action by March 22, 2024

On December 21, 2023, the IRS launched a new Voluntary Disclosure Program (ERC-VDP), providing an option for businesses that erroneously received Employee Retention Credit (ERC) claims to repay the money without penalty. 

The program is only available until March 22, 2024.

General Program Information – Repayment of 80% of the Erroneous Credit Received

Per the IRS announcement of the ERC-VDP, eligible applicants repay 80% of the ERC received, retaining 20% of the credit and avoiding civil penalties and interest on the amount received. The 80% amount was chosen because many firms preparing these claims charged a percentage of the money. Therefore, most taxpayers did not retain 100% of the credit.

It is important to clarify that the ERC-VDP should only be considered if the applicant believes their ERC claim was erroneous. Not all ERC claims are fraudulent. If the ERC claim was legitimate, there is no need to apply for the ERC-VDP and repay any of the ERC received.

Qualifying for the Voluntary Disclosure Program

To qualify for the VDP, the taxpayer must provide the name, address, and telephone numbers of any advisors or tax preparers who assisted with their claim, and provide details about the services they provided to the business.

Additionally, most businesses that received ERC money should be able to take advantage of this program; however, businesses under any of the following circumstances will not be allowed to utilize the program:

  • The business is under criminal investigation and has been notified that they are under criminal investigation.
  • The business is under an IRS employment tax examination for the tax period for which they're applying to the Voluntary Disclosure Program.
  • The business has received an IRS notice and demand for repayment of part or all the ERC.
  • The IRS has received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action.

How to apply

To apply to participate in ERC-VDP program, taxpayers must complete Form 15434, Application for ERC-VDP, and submit it via the IRS Document Upload Tool by March 22, 2024. Form 15434 must be signed by an authorized person under penalties of perjury. A signed Form SS-10 Consent statute extension form must be completed for taxpayers applying for ERC-VDP for a period ending in 2020.

All payments of balances due should be made via The Electronic Federal Tax Payment System EFTPS and payment at the time the application is filed could speed up resolution of the case. However, the program also provides for the possibility of repaying the ERC amount through an installment arrangement. If the IRS approves repayment under an installment agreement, interest will only accrue prospectively from the agreement date. The IRS will not assert civil penalties against participants that make full payment of the 80% of claimed ERC prior to executing the required closing agreement.

IRS FAQs indicate that ERC-VDP applications will be handled on a first come, first serve basis. Most cases should resolve quickly but the FAQs provide there is no way to estimate how long the process will take. Applicants can call the ERC-VDP hotline at 414-231-2222 and leave a voicemail to check on the status of their application or for assistance with the ERC-VDP process, including completing Form 15434.

After receiving all the necessary information, the IRS will send a closing agreement which must be signed and returned to the IRS within 10 days of the mailing date. As indicated above, if payment is not made with the signing of the closing agreement, civil penalties may be asserted. 

Other Important Information – Outsourced Payroll, Effect on Prior Returns and ERC Withdrawal Process

If your business outsources payroll to a third party that reports, collects, and pays employment taxes on your business’ behalf, then it is the third party that must file the Form 15434. 

If you resolve your ERC claim using this program, there will be no need to amend payroll tax returns because they will be corrected by the IRS when processing your filing. If businesses did not already adjust income tax returns related to ERC, then no changes will need to be made to income tax returns. If you did already amend your income tax return for ERC, you may file an amended return to undo the effect of ERC.

Also, if you have not yet received a refund from an ERC claim that you think may be questionable, you are still able to withdraw the claim as explained in this previous blog, ERC Update: IRS Explains Withdrawal Option Process.

Finally, in other ERC news: Commissioner Werfel Briefed Senate Finance Committee on Employee Retention Credit - and a recent Wall Street Journal article suggested that some in the Senate belief that focusing on cracking down on the Employee Retention Credit could be considered a potential revenue offset in budget negotiations. In fact, in breaking news, on January 16, 2024, a bipartisan tax proposal the Tax Relief for American Families and Workers Act, would bar additional ERC claims after January 31, 2024. We will monitor this proposed legislation and provide updates if there is further action.

Please contact your Herbein advisors if you need assistance or advice regarding the ERC.

Article contributed by Sean McGuire