IRS Sending Up To 30,000 Letters To Address More Than $1 Billion Dollars In Errant ERC Claims & Opens A New Voluntary Disclosure Program

The IRS announced in IR 2024-213, dated August 15, 2024, that it is reopening the Voluntary Disclosure Program (VDP) for Employee Retention Credit (“ERC”) claims. The IRS will begin accepting submissions to the VDP immediately, with plans for the program to end on November 22, 2024. The IRS initially offered the program beginning on December 21, 2023, to March 22, 2024. The program itself was widely successful, recovering roughly $1.09 billion from over 2,600 applications.¹

The key difference between the original VDP and the new VDP is the amount of the previously received credit that must be paid back. The original VDP allowed the applicant to keep 20 percent of the ERC received and pay back the rest. An applicant to the second VDP is able to keep a maximum of 15 percent of the credits received.

Eligibility

For those who are unfamiliar with ERC VDP, below we provide a breakdown of the application process and potential reasons to apply for the ERC VDP program.

The VDP is exclusively available to ERC claimants who have received the credit from the IRS, cashed or deposited the credit, or used the credit to offset any outstanding tax liabilities. An employer who has not received any payment of the ERC in the form of a refund from the IRS is not eligible for the VDP.²*

In addition to the above requirement, ERC claimants who wish to apply for the VDP must not be under criminal investigation by the IRS, nor be subject to any employment tax audit by the IRS. The IRS also must not have received any information from a third party alerting the IRS to the claimant’s noncompliance. Furthermore, the claimant must not have been notified by the IRS that the ERC they received is being recaptured for any period for which a VDP application is made,³ and must not have previously received notice and demand for repayment of the ERC.

If an ERC claimant has used a third-party payer to apply for and claim the ERC on their behalf, the claimant will not be eligible to apply for the VDP concerning the ERC. In these situations, only the third-party payer can apply for the VDP. Examples of third-party payers include Certified Professional Employer Organizations (CPEOs) or Professional Employer Organizations (PEOs) that claim the ERC credit using their own Employer Identification Number (EIN) instead of the ERC claimant’s EIN.⁴  

Application Process

If you determine that you are eligible for the VDP, you can begin the VDP application process by signing completing, signing, and dating Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program.⁵** The application package can only be submitted online at IRS.gov, using the Document Upload Tool.⁶

After the package is submitted, the IRS will review it and determine your eligibility for the ERC-VDP. At this stage, the IRS can proceed in one of two ways. The IRS may reject the application and send a letter indicating the reason, which may include a request for additional information or corrections to the package. Alternatively, the IRS will accept the application and proceed with the VDP. If you are found ineligible for the ERC-VDP program, you may still be able to amend your ERC credit claims through other methods.⁷

If the package is approved, the IRS will send you a closing agreement. In some scenarios, they may also send an installment agreement. You, or an authorized agent, must sign and return the form to the IRS, along with payment of the ERC-VDP amount, which is the full ERC minus 15 percent.

Benefits of the ERC VDP

Some key benefits of the VDP include:

• Repayment of only 85 percent of the Employee Retention Credit (ERC) received. The remaining 15 percent is not taxable as income.
• Do not have to repay interest earned on ERC refund
• IRS also waives penalties and interest on claimed ERC if the ERC VDP amount is paid by the time a signed closing agreement is returned to the IRS
• No need to amend income tax returns to reduce wage expense
• The IRS won’t examine the ERC on employment tax returns for the tax periods applied through the VDP

However, applying to the VDP will not exempt claimants who received the ERC fraudulently or with criminal intent from potential criminal investigation and prosecution.

*The special ERC withdrawal program is still active for ERC applicants who have not been paid yet or have received an ERC check but have not cashed or deposited the ERC check. For more information on the withdrawal program, please visit the following website.

**Additional materials to include with the application package can be found within ERC-VDP Process A2.

Contact our team today to discuss your eligibility for the VDP program. Call us at (410) 497-5947 or schedule a confidential consultation.