Article | by Geffen Mesher

The Internal Revenue Service (IRS) has opened the second round of the Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP), providing a unique opportunity for businesses to rectify erroneous claims without penalties or interest. The program, which will run through November 22, 2024, allows businesses to correct improper 2021 payments at a discounted rate of 15%, thereby avoiding future audits, penalties, and interest.

The reopening of the VDP is part of the IRS’s intensified compliance work targeting improper ERC claims. The agency is concerned about a surge in questionable claims, many of which were driven by aggressive marketing by some promoters. To assist businesses caught in this situation, the IRS encourages businesses who claimed the ERC to review eligibility requirements and consider whether the VDP is a suitable option.

Businesses accepted into the program will need to repay only 85% of the credits they received. This round of the program is open for tax periods in 2021. Businesses cannot use the second VDP to disclose and repay ERC money from tax periods in 2020. If the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay the interest.

If an employer is unable to repay the required 85% of the credit at the time of signing its closing agreement, it will be required to pay penalties and interest in connection with an alternative payment arrangement such as an installment agreement. To qualify for the program, employers must provide the IRS with the details of any advisors or tax preparers who assisted them with their claims.

In addition to the VDP, the IRS is planning to mail up to 30,000 letters to address potentially more than $1 billion in improper ERC claims. As part of ongoing compliance work, these letters aim to reverse or recapture improperly paid ERC claims. The IRS is keen to stress that those who receive these recapture letters will be ineligible to participate in the VDP for the calendar quarter the letter covers.

The previous round of ERC letters resulted in the IRS determining that more than 12,000 entities filed claims that were improper for Tax Year 2020, resulting in $572 million in assessments. The latest letters generally involve larger claims than earlier letters regarding 2020 because Congress increased the maximum ERC in 2021. In parallel to these measures, the IRS continues to analyze ERC claims, intensify audits, and pursue promoter and criminal investigations.

In conclusion, the reopening of the ERC Voluntary Disclosure Program provides a timely opportunity for businesses to rectify erroneous 2021 claims and avoid future penalties. Employers are strongly encouraged to review their ERC claims and speak with a trusted tax professional to see if this program is a good option.

The IRS has provided a set of Frequently Asked Questions about the second ERC Voluntary Disclosure Program to help employers understand the terms of the program.

News Release: IRS provides details of second Employee Retention Credit Voluntary Disclosure Program

Geffen Mesher’s team is available to assist you with questions related to these updated rules. Please contact our professionals for more information at INFO@GMCO.COM.