In October of 2023, the IRS announced a special withdrawal process allowing employers who may have been pressured or misled into filing erroneous employee retention credit (ERC) claims. Generally, this option is available to employers whose ERC claims have not been processed or who have not cashed or deposited refund checks they received.
IRS news release IR-2023-247, Announcement 2024-3, and new FAQs introduce a Voluntary Disclosure Program to help businesses that do not qualify for the special withdrawal process to repay the money they received after filing ERC claims in error. The application period for the program will run through March 22, 2024. If accepted into the program, the business would repay 80% of the ERC they received.
Here are the businesses that are eligible for the Voluntary Disclosure Program:
Any business or employer who received and cashed or deposited the ERC may apply to the program if all of the following are true. The participant:
- Was not entitled to any portion of the ERC.
- Has not received an IRS notice and demand for repayment of all or part of the ERC.
- Is not under an IRS employment tax examination for any tax period covered by the application.
- Is not under criminal investigation and hasn’t been notified they’re under criminal investigation.
In addition, the IRS must not have information from an enforcement action or from a third party regarding the participant’s ERC noncompliance.
The steps for Voluntary Disclosure Program participation are:
1) The Application
First, the taxpayer must complete, sign, and submit Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. If a third party such as a payroll provider assisted the business in applying for the ERC, the third party would complete the application. The form must be submitted via the IRS Document Upload Tool. The application must:
- Provide identifying information about the taxpayer.
- Indicate which tax period(s) the ERC was claimed for and the full amount of the ERC. (Note, a separate application is not needed for each tax period.)
- If applicable, identify the return preparer or advisor who assisted with the ERC claim.
The IRS will then send the participant a letter letting them know the IRS received the application and whether the IRS can proceed or the application is rejected.
2) The Payment
The applicant must pay 80% of the ERC received, minus any underpayment interest.
For example, a taxpayer received an erroneous ERC of $50,000 plus $2,500 interest ($52,500 total). The taxpayer would repay $40,000 ($50,000 × 80%). Payment must be made via EFPTS. The payment is due no later than the time the taxpayer returns the signed closing agreement (see next section). Taxpayers are not subject to penalties or interest on the repayment.
Taxpayers who are unable to pay in full may request an installment agreement along with their application. Late payment penalties and interest do apply to installment payments.
3) Final Steps
If the taxpayer’s application is accepted, the IRS will adjust the taxpayer’s employment tax account to reflect the reduced or eliminated ERC. The IRS will mail the taxpayer a closing agreement package. The taxpayer should review the package and promptly (within 10 days) sign and return the closing agreement per the examiner’s instructions.