December 22, 2023

IRS Announces ERC Voluntary Disclosure Program

Application Deadline is March 22, 2024

By David Shuster, Partner, Tax & Business Services

IRS Announces ERC Voluntary Disclosure Program Employee Retention Tax Credit

Following recent initiatives to combat dubious Employee Retention Credit (ERC) claims, including placing a moratorium on processing ERC claims, setting up an ERC claims withdrawal process, and sending an initial round of more than 20,000 letters disallowing ERC claims, the IRS has now announced a voluntary disclosure program allowing repayment of erroneously granted ERC claims, without interest and penalty.

Recognizing that there are well intentioned businesses that wish to correct and pay back credits they received erroneously, perhaps in connection with unscrupulous promoters using aggressive marketing tactics, but that have concerns about paying back the portion of the credits paid to such promoters, the IRS is offering eligible employers the opportunity to repay 80% of their claimed ERCs.

In addition to repaying only 80% of its claimed ERC without penalty and interest, an eligible employer won’t be required to reduce its wage expense by its previously claimed ERC. However, if the full 80% is not fully repaid on time, for example, if the taxpayer enters into an installment agreement to repay that amount, interest and penalties may still apply.

An employer that has received an ERC refund is eligible for the voluntary disclosure program if application to the program is made on or before March 22, 2024, and if:

  • The employer is not under criminal investigation and hasn’t been notified that the IRS plans to commence a criminal investigation;
  • The IRS hasn’t received or acquired information about the employer’s noncompliance;
  • The tax periods for which the employer is applying for relief are not currently being examined and
  • The employer hasn’t already received notice and demand for repayment of the claimed ERC.

If return preparers or advisors assisted with the claim for credit or refund, the application to the program must include the names, addresses, and phone numbers of these persons and a description of the services they provided.

An employer that claimed the ERC on an employment tax return filed under a third party payer’s EIN may participate in this voluntary disclosure program, but the third party payer must apply on the employer’s behalf.

After receiving requested information from an applicant, the IRS will request the applicant to execute a closing agreement. Executing that agreement won’t preclude the IRS from investigating any associated criminal conduct or recommending prosecution for violation of any criminal statute, and it won’t provide any immunity from prosecution. Nevertheless, a reasonable expectation would be that participants likely won’t see further IRS action in connection with their ERC issues.

For more detailed information on the Voluntary Disclosure Program and how it affects your business, don’t hesitate to contact a Marcum professional today.