The Internal Revenue Service (the “IRS” or the “Service”) has finally announced details related to its previously teased and highly-anticipated Employee Retention Credit Voluntary Disclosure Program (“ERC-VDP” or the “Program”). The ERC-VDP is in effect from December 21, 2023, until 11:59 p.m. local time on March 22, 2024,1 and allows employers who made improper ERC-related refund claims to repay the erroneous refund and potentially avoid repaying statutory interest and penalties. Specifically, the employer is permitted to retain 20 percent of the claimed ERC refund and must repay only 80 percent of the credit.2 Additionally, if the employer repays the ERC in full before executing the mandatory closing agreement, no interest or penalties will be assessed.
ERC-VDP may be ideal for employers who may have made errors while navigating the complexities of ERC, such as large employers who did not consider complicated aggregation rules or who had more than 100 full-time employees in 2019 (for 2020 quarters) or more than 500 full-time employees in 2019 (for 2021 quarters). The Program may also be beneficial for employers who miscalculated their gross revenue or mistakenly used accrual basis accounting instead of cash basis, or vice versa. Additionally, ERC-VDP could be optimal for employers who claimed ERC for all quarters but where governmental orders may have been lifted by a certain date and the employer is potentially not eligible for later quarters (e.g., refund claims made on Q3 2021 returns).
Employers that claimed ERC and received a credit or refund are eligible to participate in the Program subject to four requirements: 3
This form, which is signed under penalties of perjury, must include the following items:
The amount to be repaid will be calculated on Form 15434 and must be repaid using the Electronic Federal Tax Payment System (EFTPS).7 Each tax period is repaid separately. Taxpayers who cannot make a full repayment may be considered for an installment agreement pending IRS approval.
Although the Service has consistently stated that it would continue to process ERC-related refund claims that were filed prior to the processing moratorium announced on September 14—the IRS estimated a backlog of approximately 600,000 returns at that time—the backlog has grown to 1,057,000 Forms 941-X as of December 9. Some practitioners are concerned for the business owners who have been waiting months upon months for their returns to either be reviewed and/or processed and believe this additional three-month ERC-VDP could further delay any refunds from being issued.
Frost Law attorneys have years of experience in tax controversy matters and ERC eligibility and overall compliance. If you need assistance in determining your eligibility for the ERC Voluntary Disclosure Program, ERC Withdrawal Program, an ERC audit, or evaluating your ERC claim, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of expert tax attorneys.