ERC Voluntary Disclosure Program Reopened with Updated Terms

In late 2023, the IRS implemented a voluntary disclosure program allowing businesses who claimed the Employee Retention Credit (ERC) and later discovered they were not eligible to pay back 80% of the credit received without penalties or interest. This program ended on March 22, 2024. However, on August 15, 2024, the IRS reopened the voluntary disclosure program.

For this second program, participants must promptly repay 85% of the funds they received from the credit (up 5% from the 80% required in the first program) to avoid being charged with penalties or interest. This second program only applies to repaying credits received for tax periods in 2021. Employers have until 11:59 pm local time on November 22, 2024, to participate in this second voluntary disclosure program.

Participants elect to participate in the disclosure program by preparing and filing Form 15434, Application for Employee Retention Credit (ERC) Voluntary Disclosure Program. Participants must use the IRS’s Document Upload Tool to electronically upload the form and any required attachments.   Payments can be made through the Electronic Federal Tax Payment System (EFTPS), with separate payments for each tax period covered under the submitted Form 15434. For participants unable to repay the full 85% of the credit they received, the IRS may consider them for an installment agreement on a case-by-case basis, with agreements incurring interest and penalties.

Employers are eligible for the second voluntary disclosure provided the following are true:

• The employer was not under criminal investigation and had not been notified that they were under criminal investigation.
• The employer was not under an IRS employment tax examination for the tax period for which they were applying to the voluntary disclosure program.
• The employer had not received an IRS notice and a demand to repay part or all of the ERC.
• The IRS did not receive information from a third party that the taxpayer was not in compliance or had not acquired information directly related to the noncompliance from an enforcement action.
• The employer did not receive notification from the IRS that the ERC the employer received is being recaptured for any tax period the participant is applying for under the voluntary disclosure program.

The IRS stated it has plans to mail up to 30,000 letters to taxpayers reversing or recapturing improper ERC claims this fall.  Because one of the eligibility requirements precludes taxpayers who already received such letters from participating in the program, taxpayers seeking to participate should assess their situation and file Form 15434 as soon as possible.

More information about this program and other new developments will be covered in our 2024 Fall Tax School program.

By Chris Korban, CPA
Tax Materials Specialist, U of I Tax School

Sources:

• IRS Announcement 2024-30, Second Employee Retention Credit Voluntary Disclosure Program.
• IRS reopens Voluntary Disclosure Program to help businesses with problematic Employee Retention Credit claims; sending up to 30,000 letters to address more than $1 billion in errant claims.