The IRS has announced a second Employee Retention Credit (ERC) Voluntary Disclosure Program, running through November 22, 2024, which allows businesses to correct improper payments at a 15% discount and avoid future audits, penalties, and interest. This reopening of the ERC Voluntary Disclosure Program only applies to tax periods in 2021 and aims to assist businesses that may have received ERC refunds based on "questionable claims," often generated by what the IRS views as "aggressive marketing tactics from unscrupulous promoters."
Those accepted into the program will need to repay only 85% of the credits they received for tax periods in 2021. In addition to the 15% discount, if the IRS paid interest on the ERC refund, the taxpayer does not need to repay the interest. Employers unable to pay the full 85% may qualify for an Installment Agreement, which requires the submission of an IRS Collection Information Statement (Form 433-B) and supporting documents. The IRS will not charge interest or penalties on credits repaid on time, but those who cannot repay the full amount at signing will face penalties and interest under an installment plan. Taxpayers must also provide the IRS with information about advisors or preparers who advised or assisted with their claims.
Who Can Apply?
Any employer who already received the ERC for a tax period in 2021 for which they weren't entitled can apply to participate in the Voluntary Disclosure Program. The IRS has also released the following guidelines for eligibility:
- The employer hasn't already applied to the first ERC VDP for the same tax periods. The IRS is still processing VDP applications from the first program, so taxpayers should not reapply for the same periods.
- The employer isn't under criminal investigation.
- The employer isn't under an IRS employment tax examination for the tax period for which they're applying to the VDP.
- The employer hasn't received a Letter 6577-C, Employee Retention Credit (ERC) Recapture, or an IRS notice and demand for repayment of part or all of its ERC claim.
- The employer hasn't already filed an amended return to eliminate their ERC.
- The IRS hasn't received information from a third party or directly from an enforcement action indicating that the taxpayer is not in compliance.
How to Apply
To apply, employers must file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. In light of the IRS's crackdown on improper ERC claims and the severe consequences taxpayers may face, taxpayers should discuss their situation with an experienced professional to determine if the VDP is a good option.
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