On December 21, 2023, the IRS introduced a voluntary disclosure program that allows employers to pay back the majority of ERC funds they received under claims that may not have complied with legal requirements.
The IRS recognizes many employers filed ERC claims with the assistance of third-party advisers who were paid a contingent fee based on the success of the claim or promised they could determine eligibility in a matter of minutes (read more about red flags for Employee Retention Credit claims from the IRS). These types of approaches often led to eligibility requirements that were incorrectly interpreted.
The new voluntary disclosure program is open to taxpayers through March 22, 2024, and complements the ERC claim application withdrawal process released in in the fall of 2023.
Read “IRS Announces ERC Claim Withdrawal Process”
What is the ERC Voluntary Disclosure Program?
Similar to the claim withdrawal process, the voluntary disclosure program is intended to assist taxpayers that believe they have filed erroneous ERC claims and, as a result, received funds or credits. Unlike the earlier process, taxpayers who have received a credit or refund and cashed or deposited the refund checks can use the voluntary disclosure program. Under the new program, taxpayers:
- Are only required to repay 80% of the claimed ERC and will not be subject to income taxes on the remaining 20%.
- Will not be subject to interest or penalties on the underpayment of employment taxes as a result of a non-qualifying ERC claim if taxpayers repay the entire 80% required prior to executing the closing agreement.
- Who reduced wage expense for a prior period as a result of claiming the ERC can file an amended return or Administrative Adjustment Request to deduct 100% of the previously disallowed expense. Alternatively, taxpayers who have not previously reduced their wage expense do not need to file an amended return or Administrative Adjustment Request.
Who is Eligible for the ERC Voluntary Disclosure Program?
The program will apply to taxpayers that have filed an ERC claim, received a credit or refund, and:
- Are neither under criminal investigation nor been notified by the IRS of its intent to commence a criminal investigation;
- Are not under an employment tax audit for the period(s) to which the voluntary disclosure relates;
- Have not previously received a notice and demand for repayment of the ERC credit or refund; and
- Have not been previously identified by the IRS, either by a third party or through enforcement actions, as noncompliant.
What is the Process for the ERC Voluntary Disclosure?
- Taxpayers must submit a completed Form 15434 and required attachments electronically via the IRS Document Upload Tool on or before 11:59 p.m. on March 22, 2024. This includes Form SS-10, Consent to Extend the Time to Assess Employment Taxes, for the tax period that relate to 2020.
- Taxpayers will remit the required payment for each period included in the voluntary disclosure application separately online via the Electronic Federal Tax Payment System. Installment agreements may be available but will require approval by the IRS.
- The IRS will mail a closing agreement to taxpayers after receiving all required information. Taxpayers will have 10 days from the date of mailing to execute and return the signed form.
If you are an employer taxpayer and have questions regarding your eligibility for a previously filed ERC claim, the withdrawal process or the new voluntary disclosure program, consult with your tax adviser before the March window closes.
Contact Robert Venables at rvenables@cohenco.com or a member of your service team to discuss this topic further.
Cohen & Co is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.