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ERC Voluntary Disclosure Program: Helping Small Businesses Pay Incorrect Employee Retention Credits

Posted by Brandon Keim | Mar 01, 2024 | 0 Comments

During the height of the COVID-19 pandemic, companies were allowed to file for Employee Retention Credit (ERC) claims if they had kept employees on their payrolls under certain conditions. While the ERC was intended to apply under limited circumstances, many employers were misled into thinking that they were eligible for the credit and thus included it in their tax filings. 

To help those employers who legitimately—but wrongly—believe they are entitled to the credit, the IRS allows them to withdraw the credit and pay the new balance with no interest or penalty. 

And now the IRS has created a new temporary program to allow businesses to fix their filings—and potentially avoid related interest and penalties—while the IRS pursues tax advisors who falsely promoted ERC eligibility.

Qualifying for the ERC Voluntary Disclosure Program 

Companies must apply to be in the ERC Voluntary Disclosure Program by no later than March 22, 2024 

To be eligible for this program, the companies must come forward on their own, and they must identify any tax advisors who advised them on how to file for the ERC.  

Companies are barred from the program if any of the following apply:  

·        They have already received an IRS notice demanding repayment for the ERC

·        A third party already notified the IRS of the business' wrongful claim

·        They are already the subject of an IRS tax examination

·        They are already the subject of an IRS criminal investigation 

ERC Voluntary Disclosure Program Benefits 

If an employer is accepted into this program, they will sign a closing agreement relating to their withdrawal of the credit. 

If employers can pay 80 percent of the credit at the signing, they do not need to repay the remaining 20 percent. Additionally, they will be exempt from interest that accrued relating to the claimed credit. 

If employers cannot pay 80 percent at the signing, they can agree to an installment plan for the amount due. However, they will be required to pay penalties and interest.      

The IRS understands that many unscrupulous tax advisors were promoting the ERC claims to employers. Hence, the agency wants to catch the wrongdoers and help business owners caught in the scheme. That's why the IRS set the amount due at 80 percent of the credit—allowing the fact that promoters often demand 20 percent of it as their fees.  

But the IRS forgiveness only goes so far. 

In December, the IRS sent notices to 20,000 businesses that they were ineligible for the ERC, and it plans to send at least 20,000 more notices. Businesses that receive those letters will also be ineligible for this volunteer program.  

Therefore, employers who took an ERC should contact a tax attorney as soon as possible to review their eligibility and, if needed, apply for the disclosure program—before any notice arrives at their location.  

If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.

About the Author

Brandon Keim

A Certified Tax Law Specialist, CPA, partner at Frazer Ryan Goldberg & Arnold LLP, and former Senior IRS Trial Attorney, Brandon Keim holds an LL.M. in Taxation from Georgetown University Law Center.


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