IRS Launches Second Employee Retention Credit Voluntary Disclosure Program

AAFCPAs would like to make clients aware that the Internal Revenue Service introduced its second Employee Retention Credit (ERC) Voluntary Disclosure Program, which runs until November 22, 2024. This initiative allows businesses to correct improper ERC payments at a 15 percent discount and avoid future audits, penalties, and interest.

Under this program, businesses will need to repay 85 percent of ERC credits received, and the IRS will not impose interest or penalties on repayments made by the deadline. For those unable to pay the full amount, an installment agreement may be arranged on a case-by-case basis pending submission and review of Form 433-B, Collection Information Statement for Businesses, and all required supporting documentation. Employers may face additional penalties and interest in connection with an alternative payment arrangement, such as an installment agreement.

This program only applies to claims from the 2021 tax year and does not cover ERC credits from 2020. To qualify for the program, employers must supply the IRS with the names, addresses, and contact information of any advisors or tax preparers who assisted with their claims along with details about the services provided.

The IRS’s claim withdrawal program is still available for businesses with pending ERC claims.

Who can apply?

A range of ERC recipients are eligible for the second ERC Voluntary Disclosure Program provided the following conditions are met:

• The employer hasn’t already applied to the first ERC VDP for the same tax periods. The IRS is still processing VDP applications from the first program. Taxpayers should not reapply for the same periods.
• The employer isn’t under criminal investigation.
• The employer isn’t under an IRS employment tax examination for the tax period for which they’re applying to the VDP.
• The employer hasn’t received a Letter 6577-C, Employee Retention Credit (ERC) Recapture, or an IRS notice and demand for repayment of part or all of its ERC claim.
• The employer hasn’t already filed an amended return to eliminate their ERC.
• The IRS hasn’t received information from a third party or directly from an enforcement action that the taxpayer is not in compliance. 

How to participate.

To participate in the second ERC Voluntary Disclosure Program, employers must take the following steps:

1. Application Submission. Complete and file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form should be submitted through the IRS Document Upload Tool.
2. Credit Repayment. Employers must repay the full amount of ERC credits received minus a 15 percent reduction offered through the program. This means they will need to return 85 percent of the credits. Any overpayments of interest received will not be required to be returned.
3. Installment Agreement. If an employer cannot pay the full amount in one payment, they may apply for an installment agreement. This option is available under specific conditions and requires submitting additional documentation.
4. Payroll Outsourcing. Employers who outsource their payroll to a third party must have the third party submit Form 15434 on their behalf. The third party, which handles payroll reporting, collections, and payments under its own Employer Identification Number, is responsible for filing the application.

After submitting Form 15434, an IRS representative will review the application and provide guidance. If approved, the IRS will send a closing agreement, and the employer must repay 85 percent of the ERC received using the Electronic Federal Tax Payment System (EFTPS). For those unable to repay in full, an installment agreement may be arranged, though it may involve penalties and interest. The IRS recommends considering a loan to cover the repayment. After payment, the employer must return the signed closing agreement to the IRS.

The IRS provides additional guidance on tax implications and amendments needed to properly state income tax. For additional guidance, the IRS has released an ERC Eligibility Checklist and Frequently Asked Questions on their website.

How We Help

AAFCPAs is available to assist clients with eligibility assessment, form preparation, and documentation support. We also offer guidance on compliance and assist with financial planning to cover repayment costs, considerations on income tax implications, and help for clients navigating the complexities of the ERC Voluntary Disclosure Program. Clients who have partnered with us for their ERC filings can be assured that their submissions are in compliance with IRS guidelines. But we remain available to assist others who may have questions or concerns regarding their ERC filings.

If you have questions, please contact Courtney McFarland, CPA, MSA, 340B Apexus Certified Expert™ at 774.512.4051 or cmcfarland@aafcpa.com—or your AAFCPAs Partner.