IRS Launches ERC Voluntary Disclosure Program

Last year, the IRS managed fallout resulting from deceptive third-party promoters, known as ERC mills, who used aggressive tactics, such as unsolicited cold calls and emails, to mislead well-intentioned businesses into filing Employee Retention Credit (ERC) claims. To assist businesses who were pressured into submitting inappropriate claims, the IRS announced several special initiatives. These initiatives help anyone misled by an ERC mill regarding eligibility in the program and, therefore, who may have taken credits to which they were not entitled.

Unlike ERC mills, AAFCPAs does not pressure its clients into filing but instead provides a comprehensive, impartial assessment of eligibility to aid in your decision-making process. AAFCPAs’ ERC assessments are managed by qualified CPAs and attorneys.

If your company acted on misleading guidance provided by an unscrupulous ERC mill, the IRS’ new ERC Voluntary Disclosure Program (VDP) can act as a remedy. If an employer claimed and received the ERC and was ineligible, they may apply for the ERC-VDP through March 22, 2024.

This program requires that employers:

1. Pay back 80 percent of the ERC received, with the remaining 20 percent reflecting the share the ERC promoters took from the business’ ERC payment, which is frequently around 20 percent;
2. Respond timely to any IRS request for more information;
3. Provide information about anyone who advised or assisted with the ERC claim; and,
4. Sign a closing agreement.

ERC-VDP participants enjoy several benefits. For instance, interest received on their ERC refund will be waived and they will not need to amend their income tax returns to reduce wage expense. Participants can also rest assured that their 20 percent reduction will not be taxable as income. Furthermore, the IRS will not charge penalties or interest on ERC funds repaid in full, e.g., 80 percent of the ERC, by the time you return your signed closing agreement to the IRS. Finally, the IRS will not examine or audit the ERC on your employment tax return for tax periods resolved within the terms of ERC-VDP.

Who may apply for the ERC-VDP?

You may apply to the ERC-VDP if:

• The ERC you claimed on an employment tax return has been processed and credited and/or paid as a refund.
• You now think you were not entitled to any ERC for a given tax period.
• You want to return the entire amount of the ERC claimed and received for a given tax period, less the 20 percent.

Who may not apply for the ERC-VDP?

You may not apply for the ERC-VDP if:

• Your ERC claim has not yet been processed and paid or, if it was, the refund check has not been cashed or deposited.
• You believe you are ineligible or that only a portion of the ERC is eligible for the period in which you are applying.
• You are under employment tax examination by the IRS.
• You have been notified that you are, or will be, under criminal investigation by the IRS.
• You have reversed your ERC to $0.00.
• The IRS reversed or notified you of intent to reverse your ERC to $0.00.

The ERC claim withdrawal process may be used if the IRS has not paid your claim or if the IRS has paid your claim but you have not cashed or deposited the refund check. This will avoid future repayment, interest, and penalties.

If you would like to know more about the above or how to apply to the ERC-VDP or Withdrawal Program, please contact Enis Bezhani, CPA, MSA, Director at 774.512.4045 or ebezhani@aafcpa.com—or your AAFCPAs Partner.