In an attempt to curb questionable claims and correct errors in Employee Retention Credit (ERC) applications, the Internal Revenue Service (IRS) has introduced a Voluntary Disclosure Program. This program offers a crucial opportunity for businesses seeking to return funds received in error after submitting incorrect ERC claims.
The special program, valid until March 22, 2024, seeks to mitigate the impact of improper claims. Under this program, the IRS allows 80% refund of the amount claimed. This action is part of a broader effort to stop aggressive practices related to the ERC, which led some employers to submit erroneous claims.
IRS Commissioner Danny Werfel emphasized the importance of this initiative for employers who, induced by questionable practices, filed incorrect claims. This disclosure program offers a less burdensome option to correct financial errors, while also contributing to the collection of data on the promoters involved in these problematic situations.
The deadline to apply for the ERC Voluntary Disclosure Program ends on March 18, 2024. Employers accepted in this program will only have to return the 80% of the credit received, without having to pay associated interest. Those struggling to pay 80% may qualify for an installment agreement, subject to certain conditions and submission of required documentation.
The IRS agrees not to charge interest or penalties on credits paid under this program. However, if an employer is unable to pay the required 80% at the time the agreement is signed, penalties and interest will apply in connection with the installment agreement.
This program takes as reference the 80% of the credit claimed due to the fees charged by the promoters, who often retained part of the total amount before its distribution to the final recipients.
To qualify, employers must provide the IRS with detailed information about the tax advisors or preparers involved in the claim.
As part of this effort, the IRS has begun sending up to 20,000 letters with proposed tax adjustments to recover incorrectly claimed ERC in tax year 2020.
These adjustment attempts are in addition to the 20,000 denial letters sent in early December. This measure seeks to encourage companies to participate in the disclosure program and correct potential errors before facing further action from the IRS.
Commissioner Werfel noted that this program offers a window of opportunity for taxpayers, being a more favorable option compared to subsequent IRS action, which entails higher costs and greater risks. Employers are expected to consider this option as an avenue to more favorably resolve their erroneous ERC claims.
The IRS continues to strengthen its enforcement activities to correct improper ERC claims, including assessments and regular tax collection procedures for those identified with excessive or erroneous claims.
The new IRS Voluntary Disclosure Program for the Employee Retention Credit represents an essential opportunity for employers seeking to correct erroneous claims. The limited time window and favorable conditions make this program a valuable option to rectify financial mistakes and avoid further consequences. Those who find themselves in this situation should seriously consider this opportunity before facing more severe actions from the IRS.
