IRS Reopens Employee Retention Credit Voluntary Disclosure Program

United States Tax

The Internal Revenue Service (IRS) has announced the reopening of the Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP), which will run through November 22, 2024. This program offers businesses the opportunity to correct improper ERC claims without facing penalties or interest. Here's what you need to know:

Why Consider the ERC Voluntary Disclosure Program?

The second ERC VDP is designed to help businesses that may have received ERC payments they were not entitled to. Many of these claims were driven by aggressive marketing from unscrupulous promoters.¹ By participating in the VDP, businesses can self-correct and repay the credits they received, avoiding future audits, penalties and interest.

Key Benefits

15 Percent Discount: Businesses will only need to repay 85 percent of the credits they received.
No Penalties or Interest: The IRS will not charge interest or penalties on credits repaid timely.
Avoid Future Audits: Participating in the VDP can protect businesses from potential costly compliance actions in the future.

Eligibility Requirements

To qualify for the second ERC VDP, the following conditions must be met:

Only applies to ERC claims for quarters in the 2021 tax year.
The employer must not have already applied to the first ERC VDP for the same tax periods.
The employer must not be under criminal investigation.
The employer must not be under an IRS employment tax examination for the tax period for which they're applying.
The employer must not have received a Letter 6577-C or an IRS notice demanding repayment of part or all of its ERC claim.
The employer must not have already filed an amended return to eliminate their ERC.
The IRS must not have received information from a third party or directly from an enforcement action indicating noncompliance.

Application Process

Form Submission: Employers must file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov, and submit it through the IRS Document Upload Tool.
Repayment: Employers are expected to repay their full ERC, minus the 15 percent reduction allowed through the VDP. If unable to pay the amount in full, employers may have the option to set up an installment agreement.
Third-Party Payroll Providers: If an employer outsources its payroll obligations to a third party, the third party must file Form 15434 on behalf of the employer.

Next Steps After Application Approval

IRS Contact: An IRS employee will contact the employer to discuss the application and answer any questions.
Closing Agreement: If the IRS approves the application, it will mail a closing agreement to the employer. The employer must then repay 85 percent of the ERC they received, either online or by phone, using the Electronic Federal Tax Payment System (EFTPS).
Installment Agreement: Employers unable to repay the 85 percent in full may enter into an installment agreement with the IRS. Penalties and interest will apply under the standard installment agreement policy.
Final Steps: Once payment is made, the employer must return the signed closing agreement to the IRS.

Additional Resources

ERC Eligibility Checklist: The IRS's ERC Eligibility Checklist can help businesses understand eligibility requirements and suggest next steps.
Frequently Asked Questions: The IRS has provided a set of FAQs to help employers understand the terms of the program.

By taking advantage of the ERC Voluntary Disclosure Program, businesses can correct past mistakes and avoid future complications. Don't miss this opportunity to ensure compliance and protect your business from potential penalties and interest. Apply by November 22, 2024, to benefit from this program.

Footnote

1 Internal Revenue Service, "IRS enters next stage of Employee Retention Credit work; review indicates vast majority show risk of being improper," News release June 20, 2024, https://www.irs.gov/newsroom/irs-enters-next-stage-of-employee-retention-credit-work-review-indicates-vast-majority-show-risk-of-being-improper.

Originally published 22 August 2024

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