IRS Releases Second ERC Voluntary Disclosure Program

The IRS recently announced the details of a second Voluntary Disclosure Program for the Employee Retention Credit (ERC) aimed at helping employers resolve erroneous ERC claims already processed by the IRS.

Under this Voluntary Disclosure Program, eligible participants return 85% of the ERC received and keep the remaining 15%, avoiding civil penalties and interest.

The IRS will mail up to 30,000 new letters to reverse and recapture potentially $1 billion in improper ERC claims. Taxpayers who learned they are ineligible for the 2021 ERC can use this new ERC Voluntary Disclosure program before receiving a denial notice/letter from the IRS.

How Do Employers Apply for the Program?

The IRS requires applicants to submit Form 15434 electronically by November 22, 2024. The form is the only designated method for applying for the program and is not accepted via mail or fax. If the ERC Voluntary Disclosure Program is for the first or second quarters of 2021, the taxpayer must sign an ERC-VDP Form SS-10 Consent to Extend the Time to Assess Employment Taxes.

Applicants must repay 85% of their ERC via the IRS Electronic Federal Tax Payment System either when the Form 15434 is submitted or when the taxpayer signs the closing agreement, unless the IRS approves an installment agreement. According to the IRS, applicants who repay the full 85% at once will not be charged interest or penalties on the credit. However, employers using an installment agreement may be required to pay penalties and interest.

If a third party (such as an agent, a PEO, or certified PEO) claimed the ERC for the participant under the third party’s own employment tax return, then that third party must submit the application on the participant’s behalf.

Who is Ineligible for the Program?

Employers will be ineligible if any of the following apply:

1. They are currently under criminal investigation.
2. The IRS has received information from a third party alerting the IRS to the participant’s noncompliance, or has acquired information directly related to any noncompliance from an enforcement action.
3. They are under an employment tax examination by the IRS for any tax period(s) for which the taxpayer is applying for the program.
4. They have received notice and demand for repayment of all or part of the claimed ERC.

Other Key Details Related to the New ERC Voluntary Disclosure Program

This program is only available to taxpayers who received their 2021 ERC check and have now learned they were not eligible for it. Taxpayers who have not received their ERC check and are ineligible should use the IRS’s ERC Withdrawal Program.

If you have questions about the new ERC Voluntary Disclosure Program, the recent ERC claim withdrawal option, or the ERC itself, our Business Credits and Incentives team can help.