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New IRS Voluntary Disclosure for Questionable ERC Refunds Gives Taxpayers 20% "Cut" of the Monies Received

By Anthony P. Daddino on December 22. 2023
Yesterday the IRS launched a new voluntary disclosure program that allows employers who received questionable Employee Retention Credit (ERC) refunds to keep 20% of the monies they received.

Interested employers must apply to the ERC Voluntary Disclosure Program by March 22, 2024. Those that the IRS accepts into the program will need to repay only 80% of the credit they received. If the IRS paid interest on the employer's ERC refund claim, the employer doesn't need to repay that interest. Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov, and all required supporting documentation. The IRS also continues to urge employers with pending ERC claims to consider a separate withdrawal program that allows them to remove a pending ERC claim with no interest or penalty. The IRS stated that it has already received more than $100 million in withdrawals as the agency continues intensifying audits and criminal investigation work in this area.

To qualify for this program, the employer must provide the IRS with the names, addresses and telephone numbers of any advisors or tax preparers who advised or assisted them with their claim and details about the services provided. Further qualifications and program details are in Announcement 2024-3 and are highlighted below:

Eligibility conditions: A variety of ERC recipients can apply. Any employer who already received the ERC refund for a tax period is eligible to apply for the voluntary disclosure provided:
  1. The employer is not under criminal investigation and has not been notified that they are under criminal investigation.
  2. The employer is not under an IRS employment tax examination for the tax period for which they're applying to the Voluntary Disclosure Program.
  3. The employer has not received an IRS notice and demand for repayment of part or all of the ERC.
  4. 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.
Application process: To apply, the employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay their full ERC, minus the 20% reduction allowed through the Voluntary Disclosure Program. Employers who are not able to pay the amount in full will have the option to set up an installment agreement under certain conditions.

Additional information: As part of a larger set of information on ERC, the IRS has provided a set of frequently asked questions to help employers understand the terms of the program.

Participation: If the IRS approves the employer's application, they will mail the employer a closing agreement. The employer must then repay 80% of the ERC they received, either online or by phone. If the taxpayer is unable to pay the amount in full, they may enter into an installment agreement with the IRS to pay over time. Once payment has been made, the employer must return the signed closing agreement to the IRS.

As part of this expanding effort for employers that claimed an erroneous or excessive ERC, the IRS also announced today it has started sending up to 20,000 letters with proposed tax adjustments that will recapture the erroneously claimed ERC. These mailings – which are on top of the 20,000 denial letters announced earlier in December – are currently just for tax year 2020, and work continues for tax year 2021, with additional mailings planned. If the IRS identifies an employer that has received excessive or erroneous ERC, the agency will reclaim that ERC through normal tax assessment and collection procedures.

For some taxpayers, this disclosure program is just another overzealous effort by the IRS to claw back justifiably claimed ERC refunds. For others, however, the new disclosure program – allowing taxpayers to keep 20% of the claimed ERC refund - is nothing short of a Christmas miracle.

If you have any questions about this Blog post or any other Treasury, IRS or tax-related matter, feel free to contact me directly at (214) 749-2464 or adaddino@meadowscollier.com.