By Steve Katz and Travis Thompson
On December 21, 2023, the Internal Revenue Service (“IRS”) announced a new Voluntary Disclosure Program for employers who received questionable Employee Retention Credits (“ERC”). The program helps businesses who want to pay back the money they received after filing ERC claims in error.
The new program has been in the works for several months, and is part of a larger effort by the IRS to stop aggressive marketing around ERC that misled employers into filing claims for which they did not qualify. Interested taxpayers much apply for the program by March 22, 2024, and repay 80% of the ERC they received. If the IRS paid interest on the employer’s ERC refund claim, the employer does not need to repay the interest. If an employer is unable to repay the required 80% of the credit, they may be considered for an installment agreement on a case-by-case basis, pending a submission and review of the IRS Form 433-B, Collection Information Statement for Businesses. Such employers will also be subject to penalties and interest as part of entering into an installment agreement.
The IRS continues to urge certain employers with pending ERC claims to consider the separate withdrawal program that allows them to remove a pending ERC claim with no interest or penalty. (https://www.irs.gov/newsroom/withdraw-an-employee-retention-credit-erc-claim). So far, the IRS has already received $100 million in withdrawals as the agency continues audits and criminal investigations of the ERC.
According to IRS Commissioner Danny Werfel, “The disclosure program provides a much-needed option for employers who were pulled into these claims and now realize they shouldn’t have applied.” Werfel continued, “From discussions we have had with taxpayers and tax professionals around the country, we understand that there are many employers eager to correct their error, but who remain concerned about their ability to pay back the portion of the credit that has been lost to the promoter that brought them into this mess. This new option, with an opportunity to get right with a lower financial cost, provides the relief these taxpayers requested. The new initiative will also help with our ongoing efforts to gather information on promoters who created this situation by aggressively pushing people to apply for the credit.”
For more information about the IRS’s new ERC Voluntary Disclosure Program please review the following: (https://www.irs.gov/newsroom/irs-new-voluntary-disclosure-program-lets-employers-who-received-questionable-employee-retention-credits-pay-them-back-at-discounted-rate-interested-taxpayers-must-apply-by-march-22)
Given the complex nature of ERC audits, criminal investigations, and the new Voluntary Disclosure Program, taxpayers should hire experienced tax professionals to advise them in these areas of the law. The tax attorneys at Sideman & Bancroft have extensive experience representing taxpayers with ERC audits, criminals investigations, and IRS Voluntary Disclosures. (https://www.sideman.com/practices/tax/). If you have questions about an ERC matter, please contact Sideman & Bancroft Tax Group leader Steve Katz at: (415) 392-1960.