The Internal Revenue Service (“IRS”) has announced the launch of a special voluntary disclosure program for businesses that made and received erroneous or ineligible Employee Retention Credit (“ERC”) claims. The program will only be available for a limited time until March 22, 2024.
The IRS announced the new voluntary disclosure program in Announcement 2024-3 on December 21st, 2023.1 The program is the IRS’ latest initiative in an ongoing campaign aimed at combating erroneous, excessive, and/or fraudulent ERC claims, which may have been filed by ineligible businesses who were scammed, pressured, or misled by aggressive promoters into filing an ERC claim. This program is in addition to a “sister” IRS program announced in October which allows businesses to withdraw pending ERC claims with the IRS without penalties or interest.
For those businesses who have already received their ERC claims, however, this new voluntary disclosure program allows a special opportunity to settle their claim with the IRS by repaying only 80% of the credit they received in return for a waiver of interest and civil penalties. The IRS announcement describes, among other things, the requirements for participation, the application process, and the benefits of participating.
Benefits of Participating in ERC Voluntary Disclosure
This new voluntary disclosure program provides unique benefits and relief, including:
- A 20% reduction on the amount of ineligible ERC which must be repaid; and
- A waiver of interest and all civil penalties2 related to the underpayment of employment tax attributed to the ERC.
Eligibility for ERC Voluntary Disclosure
Participation is restricted to those businesses which have already had their ERC claims paid, but suspect their claim is based on a misleading, erroneous, excessive, and/or fraudulent tax return. These businesses can apply if:
- They are not under, or been notified that they are under, criminal investigation;
- They are not under an IRS employment tax examination for the period in question;
- They have not received an IRS notice and demand for repayment of the ERC; and
- The IRS has not received third-party information that the business did not comply with the requirements of the ERC.
Applicants must also provide the IRS with the names, addresses, and telephone numbers of any advisors or tax preparers who advised or assisted them with their claim and provide details on their services provided. Participation in the program is not limited to those who were scammed, pressured, or misled by promoters.
Application Process for ERC Voluntary Disclosure
The IRS has begun accepting applications for the new voluntary disclosure program. To apply, interested businesses must first file Form 15434, Application for ERC Voluntary Disclosure Program, with the IRS. Businesses which are not able to pay the 80% ERC amount in full may set up an installment agreement under certain conditions. Once approved, the IRS will enter into a closing agreement with the business.
Intensifying IRS Efforts
This voluntary disclosure program is the IRS’ latest in a series of escalating initiatives to combat ineligible ERC claims. The ERC is a refundable tax credit for certain eligible businesses that had employees and were affected during the COVID-19 pandemic – but has been the popular subject of scams, aggressive promotion, and fraud.
The IRS intensified audit work and criminal investigations on promoters and businesses in July and paused the processing of ERC claims altogether in September. Earlier this month, the IRS sent an initial round of 20,000 letters to businesses disallowing their ERC claims, and just announced that another round of 20,000 letters is being sent3. While the IRS’ efforts continue to intensify, this voluntary disclosure program provides a limited opportunity to settle potential claims for misled or mistaken businesses.
Businesses who are concerned about their ERC claims or who have questions about their participation in this ERC voluntary disclosure program should consult with counsel on their individual situations. If you have any questions, please contact Adi Rappoport, Matthew Scheer, Andrew Stempel, or Jason Martell, attorneys in Gunster’s Tax practice group.
[2] Participation in the voluntary disclosure program does not provide amnesty from criminal prosecution.
[3] Taxpayers receiving one of these denial letters are unlikely to be eligible for the voluntary disclosure program because the program’s eligibility criteria requires the taxpayer to have not received an IRS notice and demand for repayment of the ERC.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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