IRS Announces ERC Voluntary Disclosure Program

As a follow up to our previous post regarding ERC, we want to share details of the new ERC Voluntary Disclosure Program, recently announced by the IRS.

ERC REMINDER

As a friendly, the ERC – Employee Retention Credit – is a complex tax credit for businesses and tax-exempt organizations which retained their employees through COVID-19.  During 2023, third-party ERC service promoters became so prevalent, that these ERC scams landed on the IRS’s list of the most notorious tax scams of the year.  Unfortunately, the number of small businesses swindled into filing improper ERC claims is quite high; enough that the IRS placed a hold on all ERC processing in September 2023, and provided guidance and protocol so that businesses could withdrawal their ERC claim, if they feel they may have been duped.

ERC VOLUNTARY DISCLOSURE PROGRAM

On the heels of these concerns surrounding ERC scams, the IRS recently announced their new ERC Voluntary Disclosure Program.  This could greatly benefit those businesses which have received ERC money erroneously, and need to take steps toward repayment of their ERC claims.

The ERC Voluntary Disclosure Program allows those businesses wanting to repay their questionable ERC money, to do so at a lesser rate and without penalty, in exchange for providing detailed contact information for the advisor, tax preparer, or service provider who helped their business file an improper ERC claim.

The incentive provided by the IRS is that, with this new program, a business’s voluntary disclosure qualifies them for an 80% repayment of their ERC claim (rather than 100%.)  Additionally, program participants will not be charged underpayment penalties, and the IRS will not assert civil penalties against those businesses for underpayment of employment tax attributable to the ERC.

Understanding that many of the third-party ERC promoters (scams) were charging a percentage fee to businesses using their service, the IRS decided on an 80% repayment, allowing businesses to retain 20% of their ERC claim, as a way of helping businesses recapture money lost on one of these ERC scam services, according to IRS Commissioner, Danny Werfel.

Not all businesses are eligible for this program.  Ineligible businesses include those in which the employers are under criminal investigation, those under an IRS employment tax examination, those that have received an IRS notice and demand for repayment of ERC, those for which the IRS has received information that the taxpayer is not in compliance, and others.

To participate in the ERC Voluntary Disclosure Program, businesses must notify the IRS using their new Form 15434, available on IRS.gov.

To review our past blog post related to the IRS freeze on ERC, processing delays, and withdrawal options, click here.