What happened?

The Internal Revenue Service (IRS) launched a Voluntary Disclosure Program on December 21, 2023, allowing employers to pay back 80% of the credit received via an Employee Retention Credit (ERC) claim.

What are the details?

Due to the aggressive marketing around ERC (also known as Employee Retention Tax Credit or ERTC) that misled some employers into filing claims, the IRS launched a program aimed at employers and businesses that filed a claim in error.

• Employers can pay 80% of the credit received without interest or penalties, but if not able to pay, the IRS may consider an installment agreement on a case-by-case basis.
• If the employer is unable to repay 80% of the credit at signing, penalties and interest are incurred for installment agreements.

The reason for selecting 80% of repayment is that some ERC promoters charged a fee that they collected at the time of payment or in advance, and the recipients never received the full amount.

Information regarding the application to the program is as follows:

1. Who can apply?
2. How to apply
3. For outsourced payroll
4. FAQs
5. What to do if approved

The IRS urges 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 previously reported by Vensure here: link.

Business Considerations

• With this announcement, the IRS is providing a limited window to make a voluntary disclosure if the employer does not believe they are properly qualified for the credit and would like to participate in a structured settlement. Review the possibility of withdrawing the ERC.
• Follow the steps provided by the IRS and consider entering into an agreement with the IRS complying with the required documentation.
• If you believe that you are entitled to an ERC claim but do not know how to proceed, seek counsel from a tax professional for further assistance.

Resources

• IRS Voluntary Disclosure Program Press Release
• About Form 15434, Application for Employee Retention Credit (ERC) Voluntary Disclosure Program

Source References

• IRS Launches Voluntary Disclosure Program Allowing Businesses to Avoid Penalties if They Pay Back a Portion of Incorrectly Claimed Employee Retention Tax Credits (Bond, Schoeneck & King PLLC)
• IRS Suspends Processing of New Employee Retention Tax Credit Claims (Vensure)
• IRS launches voluntary disclosure program for recipients of employee retention credits, allows repayment at discounted rate (Ernst & Young LLP)
• Time sensitive: IRS offers voluntary disclosure program for employee retention credit taxpayers (Caplin & Drysdale)

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