ERC Update: Voluntary Disclosure Program

The IRS recently announced the introduction of the ERC Voluntary Disclosure Program, a program targeted to employers who have applied for the Employee Retention Credit (ERC) in error. This program allows accepted applicants to only pay back 80% of the credit they received without penalties or interest. Interested employers must apply by March 22, 2024.

If an employer has received the ERC refund that they are not entitled to, they can apply for this program if they also meet the following criteria laid out by the IRS:

• The employer is not under criminal investigation and has not been notified that they are under criminal investigation.

• The employer is not under an IRS employment tax examination for the tax period for which they are applying to the Voluntary Disclosure Program.

• The employer has not received an IRS notice and demand for repayment of part or all of the ERC.

• The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action.

To apply for the program, employers must file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program using the IRS Document Upload Tool at irs.gov/DUT. If the employer outsources their payroll to a third-party payroll company, they will have to apply through their third-party provider. If approved for the program, the IRS will send a closing agreement to the employer. After receiving the closing agreement, employers must pay the 80% repayment by phone or online using the Electronic Federal Tax Payment System (EFTPS). Note that if the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay that interest.  Once the  repayment has been made, the employer must return the signed closing agreement to the IRS.

If the employer is unable to pay the full 80%, they may enter into an installment agreement with the IRS to pay over time. The installment agreement will be subject to interest and penalties, and it is arranged on a case-by-case basis. The IRS suggests if you are unable to pay in full to obtain a loan to avoid the penalties and interest that would occur using the installment plan.

This program is just one of the many actions the IRS is taking to help combat ERC fraud. The IRS sent out over 20,000 letters this month informing employers that their ERC claims were disallowed. With the introduction of this program, employers who were falsely under the impression they would qualify for the credit will have a chance to rectify their error without penalty. The IRS is also continuing to accept and process requests to withdraw an employer’s full ERC claim under a special withdrawal process.