In September 2023, the IRS halted ERC processing due to concerns about the number of ineligible applications, many of which were instigated by third-party solicitations. Although the IRS has added some more fraud detection measures, they have not yet announced a date to resume processing ERC applications. To assist taxpayers who may have fallen victim to such solicitations, the IRS has announced the launch of the Employee Retention Credit – Voluntary Disclosure Program (ERC-VDP) – a program that will allow organizations that applied for and received the Employee Retention Credit (despite ineligibility) to return funds without penalty (assuming they did not willfully claim or conspire to claim an ERC that is fraudulent). The ERC-VDP application requires careful consideration, but essentially has 3 core components:
- For the employer to pay back 80% of the ERC money received
- To give the IRS more supporting information, if requested
- To sign a closing agreement
What are the benefits of the ERC-VDP?
Organizations approved for the ERC-VDP:
- will not be charged interest if they pay the ERC amount back in full (minus 20%) by return of the signed closing agreement
- will not have to repay interest on their ERC refund
- will not have to amend income tax returns to reduce wage expense if not already amended (The IRS will not audit the ERC on your employment tax return for tax periods resolved within the terms of ERC-VDP)
- will not be taxed on the 20% reduction (this isn’t taxable as income)
Who is eligible for the ERC-VDP?
Organizations that applied for (and received) the ERC, but were not ERC-eligible, may be eligible for the Voluntary Disclosure Program. ERC-VDP eligible organizations must meet the following criteria:
- Employee Retention Credit claimed on their employment tax return processed and credited and/or paid as refund
- Now thinks that they were not entitled to ERC for the applicable tax period(s)
- Wants to refund the entire amount (less 20%) to the IRS (not applicable for partial adjustments for a given tax period)
For a quick way to check ERC eligibility, review the IRS’s checklist.
Who is ineligible for the ERC-VDP?
Organizations are ineligible for this new program if:
- their ERC was not processed AND paid by 12/31/2023
- their ERC was paid to them, but they did not cash or deposit the check
- they are ineligible for only a portion of the ERC for a given period they applied for (in this instance, the organization can still file another adjusted return to correct it)
- they are under employment tax examination by the IRS
- they’ve been notified that they are, or will be, under criminal investigation by the IRS
- they reversed their ERC to $0
- the IRS reversed or notified them of intent to reverse their ERC to $0
If you are ineligible for the Voluntary Disclosure Program, you may have other options.
- If you want to reduce your ERC claim, but not eliminate it, file an adjusted return to correct it.
- If you submitted an ERC claim but it has not yet been paid, you can withdraw your claim.
How to apply for the ERC-VDP
To apply for the Voluntary Disclosure Program, all applicants must submit Form 15434 (Application for Employee Retention Credit Voluntary Disclosure Program) through IRS.gov/DUT by March 22, 2024. There will be no fax or mail option for this application.
- On the welcome page, select “No” access code
- Type “15434” to pull up the correct form
- Select the tax year that corresponds to the oldest tax period on your form (2020 or 2021)
- You can use one form to apply for all applicable tax periods, but separate payments must be made for each period
- Payments can be made using the Electronic Federal Tax Payment System (tax type would be audit adjustment and advanced payment of tax deficiency)
Depending on an organization’s circumstances, other forms may need to be included in the submission, such as:
- Form SS-10 (if application includes tax periods ending in 2020) for a statute extension
- Form 8822-B for address changes
- Form 2848 or Form 8655 if you want a representative
- Form 433-B and supporting documents if you want to be considered for an installment agreement
- Schedule R for third-party payers
Please note that if you used a 3rd party payer, the 3rd party payer needs to submit your VDP application.
No Full Immunity with the ERC-VDP
The agreement does not preclude the IRS from further investigating any associated criminal conduct or recommending prosecution for violation of criminal statute.
The above post is a brief summary of the new IRS ERC-VDP program, for further details and additional questions related to the Employee Retention Credit Voluntary Disclosure Program, check the IRS’s list of frequently asked questions.
