Businesses that want to repay money received from questionable employee retention credit (ERC) claims can do so through a new voluntary disclosure program announced Thursday by the IRS (Announcement 2024-3). The program requires qualifying businesses to repay 80% of their ERC claim, the IRS announced. Program participants will not be charged underpayment interest, and the IRS will not assert civil penalties against them for underpayment of employment tax attributable to the ERC.
The voluntary disclosure program will run through March 22, 2024. To qualify for the program, the employer must provide names, addresses, and phone numbers of any advisers or tax preparers who helped with the claim and details about the services provided.
The IRS chose the 80% repayment — allowing participants to retain 20% of their claimed ERC amount — because many ERC promoters charged a percentage fee that they collected at the time of the payment or in advance, IRS Commissioner Danny Werfel said in a call with reporters.
"We could not stand idly by as small businesses were being taken advantage of by promoters trying to get hefty fees," he said. He later described the 80% figure as "an important incentive to participate in the disclosure program. Participating businesses do not need to repay all 100% of the payment they receive."
If a business is accepted into the voluntary disclosure program, the IRS will not charge interest or penalties. Also, employers will not have to repay any interest they might have received from the IRS.
Businesses that cannot repay the required 80% might be considered for an installment agreement.
Werfel described the voluntary disclosure as a "limited time offer" and later called it "the final piece that many of the tax community have been waiting on for their clients. It's important for people to review and take action quickly. The windows to participate will not remain open long."
Eligibility
Not all businesses are eligible for the program. Those that are ineligible include employers under criminal investigation, those under an IRS employment tax examination for the tax period for which they are applying to the program, and those that have received an IRS notice and demand for repayment of all or part of the ERC.
Also ineligible for the program are businesses for which the IRS has received information from a third party that the taxpayer is not in compliance or for which the IRS has acquired information directly related to the noncompliance from an enforcement action.
Taxpayers that wish to participate in the ERC voluntary disclosure program must notify the IRS by completing and submitting Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program.
Earlier in December, the IRS began sending letters to over 20,000 taxpayers, advising them that their ERC claims were being disallowed because entities either did not exist or did not have paid employees for the period covered by their claim.
The IRS now has started another campaign, sending up to 20,000 letters with proposed tax adjustments that will recapture erroneously claimed ERCs. These letters cover tax year 2020, and more mailings are planned for tax year 2021, Werfel said Thursday.
— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.
