IRS Launches New ERC Voluntary Disclosure Program

The Internal Revenue Service (IRS) has introduced a groundbreaking initiative to address questionable Employee Retention Credit (ERC) claims. This newly unveiled Voluntary Disclosure Program aims to assist businesses that received ERC funds erroneously. In this comprehensive guide, we will delve into the details of this program and explore its significance in the ongoing battle against misleading ERC claims.

Understanding the ERC Voluntary Disclosure Program

In its ongoing efforts to curb deceptive ERC claims, the IRS has rolled out a voluntary disclosure program that offers businesses the opportunity to rectify their misfiled claims. This initiative, which has been in development for several months, is a pivotal component of the IRS’s broader strategy to combat aggressive marketing tactics that led some employers astray. The ERC Voluntary Disclosure Program is set to run until March 22, 2024, and includes provisions allowing participants to repay only 80% of their received ERC claim.

Previous Actions and Ongoing Initiatives

The IRS’s commitment to addressing erroneous ERC claims is evident in its recent actions. This includes sending over 20,000 denial letters to ERC claimants, introducing a withdrawal program for pending ERC claims, and imposing a moratorium on new ERC claims processing. These initiatives underline the IRS’s dedication to ensuring the proper utilization of the ERC.

Eligibility for the ERC Voluntary Disclosure Program

Various ERC recipients are eligible to participate in this program, including employers who received ERC for a specific tax period but were not entitled to it. Eligibility criteria include not being under criminal investigation or IRS audit, not having received a demand for ERC repayment, and not having information from a third party indicating noncompliance.

Application Process

Employers interested in participating in the ERC Voluntary Disclosure Program must complete and submit Form 15434, “Application for Employee Retention Credit Voluntary Disclosure Program,” available on IRS.gov. The form should be submitted using the IRS Document Upload Tool. While participants are expected to repay their full ERC amount minus the 20% reduction allowed through the program, installment agreements are available under certain conditions.

Special Considerations for Payroll Outsourcing

Employers who outsource their payroll responsibilities to a third party must follow a specific process. In this case, the third party, not the employer, is responsible for filing Form 15434. Detailed information can be found in the form and its accompanying instructions.

Additional Resources for Applicants

To assist employers in understanding the terms of the program, the IRS has provided a set of Frequently Asked Questions (FAQs). Upon applying to the program, an IRS employee will contact the employer to review the application and address any questions.

Next Steps after Approval

Upon approval, the IRS will send a closing agreement to the employer. Payment of 80% of the received ERC can be made online or by phone using the Electronic Federal Tax Payment System (EFTPS). Employers unable to make full payment can explore installment agreements, although penalties and interest may apply.

Why 80% Repayment?

The IRS chose the 80% repayment rate to address situations where ERC promoters charged a percentage fee upfront, resulting in recipients not receiving the full claimed amount.

Expanding Efforts and Future Updates

The ERC Voluntary Disclosure Program represents the latest step in the IRS’s multifaceted approach to combat ERC fraud. The IRS is committed to intensifying audits and criminal investigations, with hundreds of criminal cases and thousands of ERC claims under scrutiny. The agency will provide updates on the moratorium in the coming year.

Reminder: Withdrawal Option for Pending ERC Claims

Employers with pending ERC claims still have the opportunity to withdraw their submissions. This special withdrawal process allows them to avoid future repayment, interest, and penalties. The IRS encourages pending applicants to review their claims, especially in light of the new Voluntary Disclosure Program.

Conclusion

The IRS’s introduction of the ERC Voluntary Disclosure Program is a significant development in the ongoing efforts to ensure the proper use of ERC funds. Employers who may have inadvertently filed erroneous claims now have an opportunity to correct their filings with reduced financial implications. This initiative, coupled with the IRS’s continued vigilance, reflects the agency’s dedication to protecting businesses and individuals from deceptive ERC practices.

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