IRS Announces New ERC Voluntary Disclosure Program
By Christopher Migliaccio, JD, Partner and the PKF O’Connor Davies Employee Retention Credit Team
The IRS recently announced a new voluntary disclosure program for taxpayers who now believe they have received the Employee Retention Credit (ERC) erroneously. This follows the IRS pause on the processing of new ERC claims and the opening of a withdrawal program for unpaid erroneous claims as part of the IRS ongoing attempts to combat fraud in the ERC program.
The voluntary disclosure program announced on December 21, 2023 allows employers who have received ERC funds erroneously to apply for the opportunity to pay back 80% of monies received and avoid penalties and interest – as long as the taxpayer provides information about the ERC promoter they worked with. Read on for more details about the program.
What Are the Terms of ERC Voluntary Disclosure Program?
Employers seeking to use the ERC voluntary disclosure program to return ERC credits received must:
- Apply to the program using Form 15434, Application for Employee Retention Credit (ERC) Voluntary Disclosure Program
- Cooperate with the IRS, such as for any requests for more information
- Voluntarily pay back the entire ERC received (not including interest), minus 20%
- Sign a closing agreement
The IRS is only requiring 80% repayment on the assumption that many applicants will have paid contingent fees of 20% or more to the ERC promoters that they worked with. The program application requires the employer to provide information about the ERC promoter they worked with.
If the employer cannot initially repay the entire amount of the credit, the IRS has indicated installment plans will be available; however, interest may be charged from the agreement date under this scenario.
In addition to only needing to repay 80% of the credit received, those accepted into the program will avoid potentially significant penalties and will not have to repay interest. Those accepted into the program will also not need to adjust their income tax returns if they have not reduced their wages for the applicable year; those who have already done so will have the ability to amend (or re-amend, as the case may be) their income tax returns to remove the reduction in wages for the ERC.
The program will be available through March 22, 2024.
Who Can Use the Voluntary Disclosure Program?
An employer can use the ERC voluntary disclosure program if all the following apply:
- Their ERC claim has been paid as a refund and deposited (or used as a credit on employment taxes)
- They are entitled to no ERC for the period applied for
- PKFOD Observation: It appears from the application that the voluntary disclosure program applies quarterly – so an employer can withdraw one or more quarters and leave credits for other quarters intact. However, if the employer needs to reduce credit for a quarter (i.e., it claimed $100,000 in credit but now believes it was entitled to $60,000), the employer must file an amended tax return and cannot use the voluntary disclosure program for that quarter.
- PKFOD Observation: It appears from the application that the voluntary disclosure program applies quarterly – so an employer can withdraw one or more quarters and leave credits for other quarters intact. However, if the employer needs to reduce credit for a quarter (i.e., it claimed $100,000 in credit but now believes it was entitled to $60,000), the employer must file an amended tax return and cannot use the voluntary disclosure program for that quarter.
- They’re not under ERC audit by the IRS
- The IRS has not notified them of full disallowance of the credit
- They have not already reversed their ERC to $0 (although, if the employer filed the amended employment tax return before December 21, 2023, the IRS will consider potential eligibility for the voluntary disclosure program)
- The IRS doesn’t have information from a third party alerting it to the employer’s ERC noncompliance
- The IRS doesn’t have information directly related to the employer’s ERC noncompliance from an enforcement action
Taxpayers who use a group payroll company for which more than one employer is represented on a single payroll tax return, such as a professional employer organization (PEO), will need to work with their payroll company to participate in the voluntary disclosure program.
Takeaways
Given the limited time frame that the program will be available and the favorable terms, employers with doubts about their ERC eligibility should perform a review, as the program could provide significant savings in penalties and interest. If you did not work with a trusted tax professional, now is an excellent time to review your eligibility and credit calculation with a trusted tax advisor. That advisor could represent you in the voluntary disclosure process, if necessary.
It’s important to note that the recent IRS activity around the ERC should not concern those with legitimate claims, who have worked with a trusted tax professional and documented their qualification.
Contact Us
PKF O’Connor Davies has helped hundreds of companies across a number of industries determine their ERC qualification, calculate their credit and help them file amended payroll tax returns.
If you have questions about the employee retention credit, contact the partner in charge of your account or:
Christopher Migliaccio
Partner
ERC Services Leader
cmigliaccio@pkfod.com
Michael Andriola, CPA, CFE, CCIFP, PSA
Partner
mandriola@pkfod.com
Michael F. Ganino, CPA, CFE
Partner
mganino@pkfod.com
Elisha M. Brestovansky, CPA, MBA
Senior Tax Manager
ebrestovansky@pkfod.com
Jon P. Klerowski, CPA, ABV, CFE
Principal, Business Advisory Group
jklerowski@pkfod.com