Guidance on the IRS ERC Voluntary Disclosure Program

Guidance on the IRS Employee Retention Credit Voluntary Disclosure Program

January 4, 2024

The IRS has recently announced a voluntary disclosure program for businesses that claimed and received the Employee Retention Credit (ERC) but later found that they were ineligible. The ERC has been the topic of much discussion for what feels like years now.

Background

The ERC is a tax credit meant to reward businesses that continued to retain and pay their employees during the COVID-19 pandemic. The eligibility requirements varied on the time period that the credit was being claimed but focused on (1) a significant reduction in gross receipts when comparing that quarter to the same quarter in 2019 or (2) impact by a specific government order.

The ERC was helpful for several businesses that endured the pandemic, but also quickly attracted aggressive promoters. Ads were all over radio, TV, social media. Many businesses would get ads that looked like official government letters, texts, emails, or phone calls.

Many of these promoters were claiming credits for entities that did not qualify, and the IRS has issued many statements about how to be wary of the signs of aggressive ERC marketing.

ERC – Voluntary Disclosure Program (VDP)

Due to the vast number of entities affected by these promoters, the IRS has created this program to help those businesses that claimed credits and later found that they were ineligible. This voluntary disclosure program (VDP) is open through March 22, 2024, and requires you to:

• Voluntarily pay back 80% of the ERC you received.
• Cooperate with any requests from the IRS for more information, which include the names, addresses, and telephone numbers of any advisors or tax preparers who advised or assisted with your claim, as well as the details about the services provided.
• Sign a closing agreement.

This is a great program to help these businesses and it boasts several advantages, including:

• Only having to pay back 80% of the credit received. The 20% decrease is an effort to provide relief for the fees paid to the ERC promoters, which are likely nonrefundable.
• The 20% that you do not have to pay back is not taxable as income.
• The IRS will not charge penalties or interest on the claimed ERC amount if you pay it in full (80% of claimed ERC) by the time you return your signed closing agreement.
• The IRS won’t examine ERC on your employment tax return for tax period(s) resolved with the terms of the VDP.

The amount of money received in many cases is significant, and the IRS understands that 80% of that amount is still a significant amount of cash. Because of this, the IRS has established installment plans that can be utilized to pay back the credit received.

It is important to note that as part of this program, the IRS is requiring the disclosure of the promoter that sold, qualified, and helped claim the credit for you. Many businesses may choose to take a chance, hoping that their claim will not be audited so that they can keep the cash. But the likely course of action by the IRS after this is to audit all claims processed by promoters that are reported in this program. So, all it will take is one business that participates in the program that used the same program and your claim will be under scrutiny. And by that point, there will no longer be an opportunity to pay back only 80% without penalties and interest.

Conclusion

If you worked with a promoter to claim and receive an ERC, and you are now unsure about your eligibility, you can contact your trusted tax professional at Larson & Company. Even if you are on the fence, let us give you some peace of mind on the matter. We will determine your eligibility and if needed, help you to take advantage of the voluntary disclosure program. Due to the March 22, 2024, deadline, it is important to get this process started as soon as possible. The IRS’s website info about the program can be found here: https://www.irs.gov/coronavirus/employee-retention-credit-voluntary-disclosure-program