The Employee Retention Credit (ERC) is a tax benefit that helps businesses keep their employees on payroll during the COVID-19 pandemic. However, not all businesses are eligible for the ERC, and some may have filed erroneous or excessive claims due to misinformation or fraud. If you are one of those businesses, you may face penalties and interest from the IRS, unless you take action now to correct your mistake.

The IRS has recently launched a new Voluntary Disclosure Program that allows businesses to pay back 80% of the ERC they received in error, without any interest or penalties. This program is available until March 22, 2024, and is designed to help businesses who were misled or pressured by promoters or advisors into filing ineligible claims. If the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay that interest.

Alternatively, the IRS also offers a withdrawal option that allows businesses to cancel their pending ERC claims before they receive a refund, and avoid any future repayment, interest, or penalties. This option is available until at least the end of the year, and is intended to help businesses who realized their error before cashing or depositing their refund check.

In this article, we will explain how these two options work, who can apply for them, and how to apply for them. We will also provide some frequently asked questions and a checklist to help you determine your eligibility for the ERC. We will also warn you about the ongoing IRS enforcement actions against ERC fraud, and how to avoid them.

What is the Voluntary Disclosure Program?

The Voluntary Disclosure Program is a special initiative that the IRS announced in IR-2023-247 on Dec. 21, 2023. It is part of a larger effort by the IRS to combat dubious ERC claims and stop aggressive marketing around the ERC that misled some employers into filing claims.

The program allows businesses who already received the ERC for a tax period but are not entitled to it to pay back 80% of the credit they received, without any interest or penalties. If the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay that interest. The program runs through March 22, 2024, and is open to any employer who meets the following criteria:

• The employer is not under criminal investigation and has not been notified that they are under criminal investigation.
• The employer is not under an IRS employment tax examination for the tax period for which they are applying to the Voluntary Disclosure Program.
• The employer has not received an IRS notice and demand for repayment of part or all of the ERC.
• The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action.

To apply for the program, the employer must file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form must be submitted using the IRS Document Upload Tool. The employer must also provide the IRS with the names, addresses, and phone numbers of any advisors or tax preparers who advised or assisted them with their claim, and details about the services provided.

The IRS will review the application and contact the employer to go over the details and answer any questions. If the IRS approves the application, it 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). EFTPS is the Treasury Department system that most businesses already use to pay various federal tax obligations.

If the employer is unable to pay the amount in full, they may enter into an installment agreement with the IRS to pay over time. 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. Once the payment has been made, the employer must return the signed closing agreement to 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.

What is the Withdrawal Option?

The Withdrawal Option is another initiative that the IRS announced in July 2023. It allows businesses that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest, and penalties. The option is available until at least the end of the year, and is intended to help businesses who realized their error before cashing or depositing their refund check.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

To withdraw an ERC claim, the employer must follow the instructions outlined by the IRS by clicking this LINK. Fax the signed copy of your return using your computer or mobile device to the IRS’s ERC claim withdrawal fax line at 855-738-7609. This is your withdrawal request. Keep your copy with your tax records. The employer must also return the refund check to the IRS if they received it but have not yet deposited or cashed it.

The withdrawal option is only available for ERC claims that have not yet been paid by the IRS. If the employer has already received and deposited or cashed the refund check, they must follow the instructions outlined by the IRS by clicking this LINK

What are the Ongoing IRS Enforcement Actions?

The IRS is continuing to take various enforcement actions against ERC fraud and abuse. These include:

• Sending letters to up to 20,000 employers that claimed an erroneous or excessive ERC that propose tax adjustments that will remove the ERC. These letters are in addition to the 20,000 denial letters that the IRS sent earlier in December to employers whose ERC claims were disallowed because their business did not exist or they did not have employees for the period covered by their claim.
• Intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has more than 300 criminal cases being worked with claims worth almost $3 billion, and thousands of ERC claims have been referred for audit.
• Imposing a moratorium on processing new ERC claims since Sept. 14, 2023. The IRS will provide an update in the new year on the status of the moratorium. The moratorium does not affect the processing of the withdrawal requests or the voluntary disclosure applications.
• Warning taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. The IRS also urges employers who submitted claims to review the ERC requirements and talk to a trusted tax professional about their eligibility amid misleading marketing around the credit.

How to Determine Your Eligibility for the ERC?

The ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order, or had a decline or significant decline in gross receipts during the eligibility periods.

The ERC is available for wages paid from March 13, 2020, through Dec. 31, 2021. The amount of the credit varies depending on the tax year, the number of employees, and the amount of wages paid. The maximum credit per employee is $5,000 for 2020 and $28,000 for 2021.

To claim the ERC, the employer must meet certain eligibility criteria and file Form 941 or 941-X with the IRS.

However, not all employers are eligible for the ERC, and some may have filed erroneous or excessive claims due to misinformation or fraud. To avoid penalties and interest, or to correct your mistake, you should review the ERC requirements and consult a trusted tax professional about your eligibility.

The IRS has provided a set of frequently asked questions and an ERC Eligibility Checklist to help you determine your eligibility for the ERC. The checklist is available as an interactive tool or as a printable guidePDF on IRS.gov.

How to Contact Us for Help?

If you have any questions or concerns about the ERC, the Voluntary Disclosure Program, or the Withdrawal Option, you can contact us for help. We are a team of experienced and qualified tax professionals who can assist you with your ERC claims and issues. We can help you:

• Review your ERC eligibility and compliance
• Apply for the Voluntary Disclosure Program or the Withdrawal Option
• Respond to IRS notices and letters
• Negotiate with the IRS on your behalf
• Resolve any tax disputes or controversies

To schedule an appointment with us, please visit our website at oandgaccounting.com/appointment-booking-form/ and fill out the online form. We will get back to you as soon as possible and provide you with the best service and solutions for your ERC needs