In a bid to tackle dubious Employee Retention Credit (ERC) claims, the Internal Revenue Service (IRS) has unveiled a groundbreaking Voluntary Disclosure Program. Designed to assist businesses that unintentionally received ERC funds, this program allows them to rectify their claims by repaying 80% of the erroneous credit received. This initiative comes as part of the IRS’s broader efforts to curb misleading marketing practices around ERC, which led some employers to file inaccurate claims.

ERC Voluntary Disclosure Program

Navigating the ERC Voluntary Disclosure Program

The ERC Voluntary Disclosure Program, set to run until March 22, 2024, offers a lifeline for businesses seeking to correct their claims. The IRS emphasizes the importance of this program, acknowledging the genuine errors made by employers who were misled into applying for the credit. To participate, interested employers must submit their applications before the deadline.

Eligibility Criteria

To qualify for the program, employers must meet specific criteria:

  1. Not under criminal investigation or notified of being under one.
  2. Not under an IRS employment tax examination for the relevant tax period.
  3. Not received an IRS notice and demand for repayment.
  4. No information from a third party indicating noncompliance.

Repayment Terms

Employers accepted into the program will repay only 80% of the credited amount. The IRS has chosen this percentage to account for fees charged by ERC promoters, ensuring employers aren’t burdened with the full credit they initially received. The repayment can be made online or by phone using the Electronic Federal Tax Payment System (EFTPS).

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Application Process

To apply, employers must file Form 15434, available on IRS.gov, using the IRS Document Upload Tool. Employers outsourcing payroll must ensure the third party files Form 15434. After submitting the form, an IRS employee will contact the employer to discuss the application and answer any queries.

Help Options

The IRS has provided a set of frequently asked questions (FAQs) to assist employers in understanding the terms of the program. Employers are encouraged to refer to these FAQs and seek clarification from the IRS.

Proposed Tax Adjustments: A New Development

In tandem with the Voluntary Disclosure Program, the IRS is taking additional measures to recapture erroneously claimed ERC funds. Employers receiving up to 20,000 letters with proposed tax adjustments, specifically for tax year 2020, are urged to participate in the disclosure program. These adjustments aim to rectify claims that may have been made in error.

Ongoing ERC Initiatives and Compliance Measures

The Voluntary Disclosure Program is just one facet of the IRS’s multifaceted approach to combat ERC fraud. With hundreds of criminal cases in progress and thousands of claims under audit, the IRS remains steadfast in its commitment to ensuring the integrity of the ERC system.

Withdrawal Option

For employers with pending ERC claims, the IRS continues to offer a withdrawal option. With more than $100 million already withdrawn by early December, this alternative allows businesses to retract their claims without incurring penalties or interest. The IRS advises pending applicants to review their claims carefully, especially in light of the newly announced Voluntary Disclosure Program.

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Conclusion

The IRS’s proactive stance in addressing ERC fraud reflects its dedication to maintaining the credibility of economic relief programs. The ERC Voluntary Disclosure Program provides a crucial opportunity for businesses to rectify their claims with reduced financial implications. As the IRS intensifies its efforts, employers are reminded to exercise caution and seek professional advice to ensure compliance with ERC requirements.

In the ever-evolving landscape of economic relief, staying informed and taking corrective action has never been more critical.

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