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Great News for Employers Who Received Questionable Employee Retention Credits

The IRS has recently unveiled a Voluntary Disclosure Program for employers who received questionable Employee Retention Credits (ERC) and wish to repay them at a discounted rate. This program is distinct from the previous one designed for those seeking to withdraw their ERC claims due to non-payment by the IRS, as discussed later in this article.

As part of an ongoing effort to combat potentially erroneous ERC claims, the IRS is introducing a new initiative to assist businesses that want to return funds received after filing inaccurate ERC claims.

New Voluntary Disclosure Program: This program is part of a broader strategy by the IRS to curb misleading practices surrounding ERC that led some employers to submit misleading claims. Employers interested in participating must apply to the ERC Voluntary


Disclosure Program by March 22, 2024. If accepted, they stand to benefit from the following:

  • Repayment of only 80% of the received credit.

  • Exemption from repaying interest if the IRS paid interest on the ERC refund claim.

Who Can Apply: Various ERC recipients can apply, provided they meet certain criteria:

  • Not under criminal investigation.

  • Not under an IRS employment tax examination.

  • Not received a notice and demand for ERC repayment.

  • Not reported as non-compliant by a third party.

How to Apply: Employers need to file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. The form must be submitted using the IRS Document Upload Tool. Repayment, minus the 20% reduction allowed through the Voluntary Disclosure Program, is expected.


Repayment Options: If unable to repay the required 80%, employers may be considered for an installment agreement on a case-by-case basis. The IRS will not charge interest or penalties on credits repaid through the program.


Why 80% Repayment: The choice of 80% repayment is based on the fact that many ERC promoters charged a percentage fee, leaving recipients with less than the full amount.

After Approval: If approved, employers will receive a closing agreement to sign and return within 10 days. Repayment is done through the Electronic Federal Tax Payment System (EFTPS).


Employers Outsourcing Payroll: Third parties handling payroll obligations must file Form 15434 on behalf of the employer.


Ongoing Initiatives: The Voluntary Disclosure Program is part of the IRS's broader efforts to combat ERC fraud, including increased audit work and criminal investigations. The IRS has sent letters disallowing ERC claims, and over 20,000 letters have been issued to employers with ineligible claims.


Claim Withdrawal Option: Employers pressured or misled into filing ineligible claims can withdraw pending ERC claims. The IRS will treat withdrawn claims as if they were never filed, without imposing penalties or interest.


Withdrawal Criteria: Employers can use the ERC claim withdrawal process if certain conditions are met, and the IRS has not paid the claim or the refund check hasn't been cashed.


Withdrawal Procedure: Detailed withdrawal instructions are available at IRS.gov/withdrawmyERC. Professional payroll companies can assist in the withdrawal process.


Audit and Criminal Investigation: The IRS continues to expand audit and criminal investigation work involving dubious ERC claims, with over 300 criminal cases and thousands of claims referred for audit.


If employers have concerns about ERC claim validity or need assistance withdrawing a claim, they are encouraged to contact the IRS.

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