New Voluntary Disclosure Program
This new program is part of a larger effort by the IRS to stop aggressive marketing around the ERC that misled some employers into filing claims.
Interested employers must apply to the ERC Voluntary Disclosure Program by March 22, 2024. Those that the IRS accepts into the program will benefit from the following:
-
They need only repay 80% of the credit they received.
-
If the IRS paid interest on the employer’s ERC refund claim, the employer would not need to repay that interest.
Who Can Apply
A variety of ERC recipients can apply. Any employer who already received the ERC for a tax period but isn’t entitled to it can apply if the following are also true:
-
The employer is not under criminal investigation and has not been notified that they are under criminal investigation.
-
The employer is not under an IRS employment tax examination for the tax period for which they’re applying to the Voluntary Disclosure Program.
-
The employer has not received an IRS notice and demand for repayment of part or all the ERC.
-
The IRS has not 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, an employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available onIRS.gov. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay their full ERC, minus the 20% reduction allowed through the Voluntary Disclosure Program.
Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov, and all required supporting documentation.
The IRS will not charge program participants interest or penalties on any credits they repay. However, if the employer is unable to repay the required 80% of the credit at the time of signing their closing agreement, then the employer will be required to pay penalties and interest in connection with entering into an installment agreement.
Why isn’t the IRS requiring payment of 100% of the ERC the employer received? The IRS selected an 80% repayment because many of the ERC promoters charged a percentage fee that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.
To help the IRS collect information on promoters that improperly prepared ERC refund claims, the IRS is requiring employers filing for ERC relief who received assistance or advice in preparing the claim from a return preparer or advisor to provide the name, address, and phone number of the preparer(s) or advisor(s) who assisted with the credit or refund claim and a description of services provided by the preparer or advisor.
After An Application Is Approved
If the IRS approves the employer’s application, they will mail the employer a closing agreement, which the employer must sign and return to the IRS within 10 days of the date the IRS mailed it. The employer must then repay 80% of the ERC they received, either online or by phone, using the Electronic Federal Tax Payment System (EFTPS). EFTPS is the Treasury Department system that most businesses already use to pay various federal tax obligations.
Employers Who Outsource Their Payroll Must Apply Through the Third Party
Many employers outsource their payroll obligations to a third party who reports, collects, and pays employment taxes on the employer’s behalf using the third party’s Employer Identification Number. In this situation, the third-party, not the employer, must file Form 15434. See the form and its instructions for details.
Other Ongoing ERC Initiatives
The new Voluntary Disclosure Program is just the latest step taken by the IRS in its ongoing fight against ERC fraud.
-
In July, 2023, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims.
-
Following concerns from tax professionals and others about aggressive ERC marketing, the IRS announced Sept. 14 a moratorium on processing new ERC claims. Enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.
-
Then, in December 2023, the IRS began sending an initial round of more than 20,000 letters to employers disallowing their ERC claims either because their business did not exist, or they didn’t have employees for the period covered by their claim.
-
In addition to these efforts, IRS audit and Criminal Investigation work involving ERC continues to expand involving dubious claims. The IRS has more than 300 criminal cases being worked with claims worth almost $3 billion, and thousands of ERC claims have been referred for audit.