The IRS has voluntary disclosure programs that allow taxpayers to come forward and admit to their bad decisions and/or mistakes. The disclosure programs include those that reduce criminal risks and others that potentially reduce penalties. The IRS has announced a second Employee Retention Credit (ERC) Voluntary Disclosure Program for 2021 tax periods that is open through November 22, 2024. The first disclosure program ended in March, there were more than 2,600 applications from ERC recipients that disclosed $1.09 billion worth or credits. The IRS has announced that it will soon mail up to 30,000 letters to taxpayers in an effort to recapture another $1 billion in improper ERC claims. The IRS has stated that “[t]he push by promoters flooded the IRS with questionable ERC claims, which clogged our systems and slowed work. We recognize well-meaning businesses are caught up in this, and we are taking important steps to help them.”

Why would taxpayers apply for the voluntary ERC disclosure program? a) The IRS is allowing qualifying taxpayers to repay only 85% of the ERC wrongly received as a credit or refund; b) Taxpayers don’t need to repay any interest received on their ERC refund; c) The IRS will not impose interest or penalties on the claimed ERC amount if taxpayers pay it in full by the time they file the signed closing agreement with the IRS.

Who can apply for the program? a) Taxpayers who claimed ERC on a 2021 employment tax return that has been processed and paid as a refund; b) Taxpayers who now believe that they were actually entitled to $0 tax credit; c) Taxpayers who are not under employment tax examination or criminal investigation by the IRS; d) Taxpayers who have not received a letter or notice from the IRS disallowing their ERC. Taxpayers should be aware that if they willfully claimed an ERC that is fraudulent, or if they assisted or conspired in such conduct, applying to the program will not exempt them from potential criminal investigation and prosecution.

How do taxpayers apply to the program? a)Prepare Forms 15434 and ERC-VDP; b) Have an authorized person sign the forms; c) Follow the steps set forth in the application package. The IRS will require a signed Form 2750 from all potentially responsible persons that extends the period for assessment of the trust fund penalty.

The IRS will review application packages and mail a letter indicating whether taxpayer’s application has been approved or rejected. If approved, the IRS will send a closing agreement. After the IRS receives the signed closing agreement, it will adjust taxpayer’s account to eliminate the ERC amount.

Bowman Law Firm LLC, Huntsville, Alabama

Gene M. Bowman Tax Attorney