On December 21, 2023 the IRS launched a new Voluntary Disclosure Program to help businesses who want to pay back the money they received after filing ERC claims in error.
The new disclosure program, is part of a larger effort at the IRS to stop aggressive marketing around ERC that misled some employers into filing claims. The special disclosure program runs through March 22, 2024, and the IRS added provisions allowing repayment of 80% of the claim received.
Interested employers must apply to the ERC Voluntary Disclosure Program by March 22, 2024. Accepted applicants need to repay only 80% of the credit they received. If the IRS paid interest on the employer's ERC refund claim, the employer doesn't need to repay that interest. Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses and all required supporting documentation.
To qualify for this program, the employer must provide the IRS with the names, addresses and telephone numbers of any advisors or tax preparers who advised or assisted them with their claim and details about the services provided. Other qualifications and program details apply.
Any employer who already received the ERC for a tax period but isn't entitled to it can apply if the following are also true:
To apply, the employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay 80% of the credit at the time of signing their closing agreement. If unable to pay the full amount, there is an option to set up an installment agreement. However, under the standard installment agreement policy, penalties and interest will apply, so the IRS encourages those who cannot pay in full to consider obtaining a loan from a financial institution to avoid the costs of an installment agreement with the IRS.
The IRS selected an 80% repayment because many of the ERC promoters charged a percentage fee that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.
Employers who outsource their payroll must apply through the third party who reports, collects and pays employment taxes on the employer's behalf using the third party's Employer Identification Number. The third party, not the employer, must file Form 15434.
Once the employer has applied to the program and submitted their Form 15434, an IRS employee will contact them to go over the application and answer any questions.
If the IRS approves the employer's application, they will mail the employer a closing agreement. The employer must then repay 80% of the ERC they received, either online or by phone, using the Electronic Federal Tax Payment System (EFTPS).
The IRS warns taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers.