IRS Releases New ERC Voluntary Disclosure Program Details

January 3, 2024

Key Takeaways

  • The IRS announces a new disclosure program for taxpayers who received funds via an erroneous Employee Retention Credit (ERC) claim.
  • The ERC Voluntary Disclosure Program (ERC-VDP) has strict eligibility rules but can offer valuable benefits for eligible taxpayers.
  • Applicants need to be aware of the specific application requirements and caveats outlined by the IRS.

The IRS recently announced the details of its Voluntary Disclosure Program (VDP) for the Employee Retention Credit (ERC) aimed at helping employers resolve erroneous ERC claims that have already been processed by the IRS. The settlement program was originally announced as part of the IRS ERC processing moratorium in September, but details were not provided until now.

Under this Voluntary Disclosure Program, eligible participants return 80% of the ERC received, retaining 20% of the credit and avoiding civil penalties and interest.

How Do Employers Apply for the Program?

The IRS requires applicants to submit Form 15434 online by March 22, 2024. This form is the only designated method for applying for the program and is not accepted via mail or fax. If the IRS accepts the program application, it will mail a closing agreement to be signed by the participant. The participant must sign and return the agreement to the IRS within 10 days of the mailing date.

Applicants must repay 80% of their ERC via the IRS Electronic Federal Tax Payment System, either at the time the Form 15434 is submitted or at the time the taxpayer signs the closing agreement, unless the IRS approves an installment agreement. Installment agreements should be submitted at the same time as the Form 15434.

According to the IRS, applicants who repay the full 80% 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. An employer’s completion of the program does not protect against criminal investigation or prosecution for any criminal conduct related to willfully filing a fraudulent claim.

If a participant used a third-party (e.g., an agent, a PEO, or certified PEO) that 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?

The IRS outlines certain circumstances that will make employers ineligible for the program. Employers will be precluded if in connection to their ERC claim any of the following apply:

  1. They are currently under criminal investigation or have been notified that the IRS intends to commence a 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 from the IRS Release

Employers participating in the program are certifying that they were not eligible for the ERC. Organizations wishing to partially withdraw an ERC claim because they were eligible for only a portion of the credit claimed for that reporting period cannot use the program for that period but are instructed to instead follow the traditional amended return process.

Participants are not required to reduce wage expenses with respect to any previously claimed ERC since the settlement eliminates the eligibility for and/or entitlement to any claimed ERC. Therefore, if a participant had not previously reduced wage expenses by the amount of the claimed credit, the participant does not need to file an amended return or Administrative Adjustment Request to reduce wage expenses. Participants who previously reduced wage expenses would need to file an amended income tax return or Administrative Adjustment Request to claim the allowed wage deductions.

Taxpayers applying for the program should pay close attention to their mailboxes, as the 10-day period to sign and return the agreement is short, and the IRS has stated extensions are not automatic.

Notably, the IRS did share that a status update on the ERC processing moratorium would be provided in the new year.

Questions About the Voluntary Withdrawal Program or the ERC?

If you have questions about the new ERC Voluntary Disclosure Program, the recent ERC claim withdrawal option, or the ERC itself, our experienced tax professionals can help.

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About the Author(s)

Tonya Rule

Tonya M. Rule, CPA

Partner/Affordable Care Act Practice Leader
Tonya helps businesses with the rules surrounding the Affordable Care Act. She assists large employers with the compliance requirements, Forms 1094-C and 1095-C, and she also advises them on very technical rules that many employers and advisors aren't aware of. In addition, she works with small businesses who are planning on expanding their current operations to make sure they are doing everything from measuring their employees correctly to deciding on the best insurance plan for their business. Tonya regularly works with clients on various ACA IRS notices and has been very successful in getting most of these penalties abated.