ERC Voluntary Disclosure Program

The new Employee Retention Credit (ERC) Voluntary Disclosure Program is the latest of the IRS’s initiatives aimed at combating ERC fraud. The IRS has been and will continue to aggressively audit businesses and launch criminal investigations in the area of ERC claims. The IRS currently has hundreds of criminal cases being worked, and thousands of ERC claims have been referred for audit and they plan on only adding to these numbers. As an initiative in resolving the matters quickly and without penalty, the IRS launched a new Voluntary Disclosure Program in December to help businesses pay back any money received under erroneous or fraudulent claims.

The employee retention credit, established under the CARES Act in response to COVID-19, offered a tax credit to reimburse “qualified wages” paid during periods of economic hardship or business closure. The credit, however, was subject to high levels of fraudulent claims due to aggressive marketing of the credit by promoters to ineligible employers. In efforts to combat this fraud, the IRS has implemented stricter compliance reviews and began auditing businesses who have applied for or already received the credit.

The new Voluntary Disclosure Program provides an option for employers who submitted claims and now realize they shouldn’t have. Those accepted into the program will only need to repay 80% of the credit they received, and don’t need to repay any interest the IRS may have paid out. This program allows employers to identify themselves and pay back only 80% of the credit, free of any interest or penalties. If unable to repay the 80%, installment payment plans are available on a case-by-case basis. However, under the standard installment agreement policy, penalties and interest will apply, so the IRS encourages those who cannot pay in full to consider obtaining a loan from a financial institution to avoid the costs of an installment agreement with the IRS.

To qualify, employers cannot be under criminal investigation or employment tax examination, they must not have received an IRS notice and demand letter for repayment of the ERC, and the IRS must not have already received information from a third party regarding the employer’s noncompliance. Additionally, the employer will be required to provide the IRS with the promoter’s information who helped them file the claim.

The deadline to apply for the new ERC Voluntary Disclosure Program is March 22, 2024.

Taxpayers who believe their ERC claims were or may have been fraudulent should consult with a tax attorney in efforts to come into compliance with the IRS immediately. This option is only available before the employer receives notice from the IRS regarding their ERC credit. Further, if you have pending ERC claims that may be erroneous, the IRS urges business to consider a separate withdrawal program to remove the claim with no interest or penalty. If either of these may apply to you, get in touch with our tax attorneys at Hone Maxwell today!


Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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