A recent blog post provided an update on the development of IRS initiatives to help businesses that were victims of aggressive Employee Retention Credit (ERC) promoters misrepresenting ERC eligibility. In October 2023, the IRS announced an ERC Withdrawal Program for eligible businesses that had not yet received payment for ERC claims. At that time, the IRS noted that additional options would be made available in the future for employers with improperly filed ERC claims that had already been processed. Furthering these efforts, the IRS recently announced a Voluntary Disclosure Program (VDP) to allow businesses with ineligible ERC claims to self-identify and repay funds received without incurring additional penalties and interest.
According to IRS Commissioner Danny Werfel, “The disclosure program provides a much-needed option for employers who were pulled into these claims and now realize they shouldn’t have applied.” To provide some relief for the financial burden imposed by ERC promoters who charged fees for their services, the ERC-VDP requires the employer to repay only 80% of the amount received as a credit on the tax return or as a refund. Income will not need to be recognized for the remaining 20% of the previously claimed credit, and interest received on the ERC refund will also not need to be repaid. Businesses that cannot immediately repay the required 80% might be considered for an installment agreement on a case-by-case basis.
Businesses who wish to apply for the program must do so on or before March 22, 2024.
ERC-VDP Eligibility Requirements
- Employer is not under criminal investigation and has not been notified that it is under criminal investigation
- Employer is not under an IRS employment tax examination for the tax period for which it is applying to the program
- Employer has not received an IRS notice and demand for repayment of part or all the ERC
- The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action
Review the IRS FAQs, Who Is Eligible for the ERC-VDP? section for additional details
Many employers outsource their payroll function to third party payers who assume the responsibility of paying employment taxes on the employer’s behalf, using the third party payer’s Employer Identification Number. In this situation, the employer cannot submit its own application; the third party payer must be the one to file on behalf of the employer.
How to Apply
The IRS encourages applicants to use the fillable versions of all applicable forms, rather than printing them out to complete the information. The fillable forms make calculations to ensure accuracy and help the IRS process the documents faster. Forms completed by hand are acceptable as long as they are legible.
All applicants must complete Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program.
- An authorized person must sign and date the application (electronic signatures are acceptable)
- A practitioner representing the employer must include Form 2848, Power of Attorney and Declaration of Representative or Form 8655, Reporting Agent Authorization
Some applicants may need to submit additional forms:
- ERC-VDP Form SS-10, Consent to Extend the Time to Assess Employment Taxes, if the application includes tax period(s) ending in 2020
- Form 8822-B, Change of Address or Responsible Party – Business, if applicable
- Form 433-B, Collection Information Statement for Businesses, with all required supporting documentation, for applicants that are unable to pay the full ERC-VDP liability and want to be considered for an installment agreement (click here for more information)
- Third party payers must attach a copy of the relevant page(s) of the Schedule R that was filed with each Form 941/Form 941-X on which the ERC was claimed for clients (click here for more information)
Calculating Payment
The ERC-VDP requires payment of the entire ERC received, minus 20%. The fillable Form 15434 will help to calculate an estimate of the ERC re-payment amount for each tax period. Separate payments must be made for each tax period using the Electronic Federal Tax Payment System (EFTPS) and selecting the “Advanced Payment” category. Note: Do not use the amount on Form 15434, Line 15, “Total All Periods” column to make a single, lump-sum payment.
The IRS recommends that payment be submitted via EFTPS along with the ERC-VCP application to speed up processing and help resolve cases more quickly. Interest and penalties will not apply to the applicant’s ERC-VDP liability as long as full payment is received by the time the signed ERC-VDP closing agreement is returned to the IRS. If the IRS approves an applicant for an installment agreement, interest and penalties will apply from the agreement date.
Submission and Processing
Applicants must submit all required information via the IRS Document Upload Tool by 11:59 pm local time on March 22, 2024, following the steps detailed here.
Regardless of whether the forms are completed electronically or manually, the Document Upload Tool must be used to submit the ERC-VDP package. There are no mail, fax, or drop-off options for applying to ERC-VDP. Applicants are encouraged to maintain copies of all documents for their own records.
The IRS will review the application package and verify the employer’s eligibility for the ERC-VDP. If the application package is rejected, the employer will receive a letter that explains why and offers potential resolution and re-submission options. If the application package is approved, the employer will be mailed a closing agreement from the IRS. The terms of the ERC-VDP closing agreement cannot be appealed, and a signed copy should be returned to the IRS with any ERC-VDP balance due within 10 business days to complete the process.
Resolution
Once the signed closing agreement is submitted and received, the IRS will adjust the employer’s account to reflect the eliminated ERC amount. No amended returns are required. The IRS is not precluded from investigating any criminal misconduct, but a reasonable expectation would be that participation in the VDP likely will not result in further IRS action related to ERC issues.
Businesses that do not participate in this program and are later found to have submitted ineligible or fraudulent ERC claims may be subject to civil interest and penalties, along with criminal charges. (click here for more information)
Additional Resources
The IRS website includes extensive ERC Voluntary Disclosure Program FAQs to address many common questions about this new initiative. If you need further assistance or advice about eligibility, application, payment or any other matter regarding this program, please reach out to your GYF Tax Executive at 412-338-9300.
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