In Announcement 2024-3, the IRS introduced the Employee Retention Credit Voluntary Disclosure Program (the “VDP”) to allow participants to resolve erroneous ERC claims in exchange for civil non-enforcement from the IRS. The deadline for participating in the VDP is March 22, 2024. The VDP is different than the IRS process that allows employers to withdraw an ERC claim that has not yet been received, or the check has been received but has not been deposited or cashed.
The VDP is part of a larger effort by the IRS to address aggressive marketing of the ERC by third-party promoters that misled some employers to file erroneous ERC claims. With this in mind, the VDP incentivizes participation by providing favorable terms in exchange for information about the promoters and advisors that helped the participant with the ERC claim. The IRS Commissioner noted that the VDP will help with the IRS’ ongoing efforts to gather information on the promoters who created this situation by aggressively pushing people to apply for the ERC.
Eligibility
Generally, any employer that has claimed the ERC and has received a credit or refund is eligible to participate, provided that: (1) the participant is not under criminal investigation and has not been notified that the IRS intends to commence a criminal investigation; (2) the IRS has not received information from a third party regarding the participant’s noncompliance, or the IRS has not acquired information directly related to the noncompliance from an enforcement action; (3) the participant is not under an IRS employment tax examination for the period for which they are applying for the VDP; or (4) the participant has not received an IRS notice and demand for repayment of all or part of the ERC. Additionally, certain procedures apply if a participant previously claimed the ERC through a 3rd party payor.
General Terms of the ERC Voluntary Disclosure Program
The VDP provides generous terms to participants regarding repayment. Under the program, the participant only remits 80% of the claimed ERC to the IRS. The IRS recognizes that many taxpayers used third parties to file the ERC and these third parties took a percentage of the ERC as a fee. To account for this fee payment, under the program, the participant is not required to repay 20% of the ERC.
Of the 80% that is owed to the IRS under the VDP, if the entire 80% is paid in a lump sum at the end of the VDP process when the closing agreement is entered, the IRS will not charge penalties or interest on the claimed ERC. However, if the applicant cannot pay the entire 80% at that time, the applicant can enter into an installment agreement but interest will apply during the installment period.
The program also offers favorable terms regarding interest payments and amended returns.
Procedures
To apply for the VDP, the taxpayer must file Form 15434, “Application for Employee Retention Credit Voluntary Disclosure Program”, which requires much of the same information as other tax forms—EIN, address, phone number—but the 15434 also requires the participant to disclose information on promoters and advisors. As part of completing the form, the participant is asked if an individual, business, or organization advised the participant to claim the ERC, and, if so, to identify each preparer/advisor who assisted in filing the ERC claim and to describe the services provided. If the IRS approves the VDP, the final part of the VDP process is for the IRS to prepare and send a closing agreement to the participant. As mentioned earlier, the participant must pay the entire 80% at this time to not be subject to interest or enter into an installment agreement.
Final Thought
The IRS has made it clear that enforcement of the ERC is a top priority due to the perceived abuse of the credit. Also, because of the perceived abuse, legislation has been introduced, but not passed, to extend the enforcement period for ERC claims from 3 to 6 years for the quarters that have not already been extended. The disclosure of preparers/advisors under the VDP will likely result in an additional increase in enforcement once the IRS has had time to process the information disclosed under the VDP. In light of this, entities that made erroneous ERC claims should consider taking advantage of the VDP before the program ends.
