ERC Latest: IRS Disallows 20k Questionable Claims, Announces Voluntary Disclosure Program

Earlier this month, the IRS announced that it was launching a voluntary disclosure program for those who received payments on illegitimate employee retention credit (ERC) claims (and did not qualify for the withdrawal program) to avoid future IRS enforcement. The voluntary disclosure program comes at the same time the IRS sent 20,000 letters of disallowed ERC credit claims in their initial round of correspondence.

Disallowed claims and voluntary disclosure program are latest evidence of strict ERC claim enforcement

The 20,000 disallowed claims involved non-existent entities or employees for the periods cited in the claim. IRS officials say that the disallowance letters are part of the initial steps of ERC claim compliance work. More letters are expected to be distributed in the near future that include disallowances as well as letters seeking the return of funds from erroneous claims.

The voluntary disclosure program will target claimants who received and deposited ERC funds and have since acknowledged that the claim was invalid. More details on the procedure to recoup the wrongly awarded funds are expected later this month. The new program is the latest effort from the IRS to offer penance to employers before being subject to an audit and further discipline. It marks roughly six months of steps from the IRS to “clean up” ERC claims.

Evolution of IRS enforcement of ERC claims

The IRS first sounded the alarms on improper ERC claims amid the exponential rise of aggressive “ERC specialist” marketing campaigns targeting employers in August. Enforcement continued as the scale of the problem became clearer, and in September, a moratorium was placed on new ERC claims as there was a massive influx of new claims and criminal investigations in a short period of time. The IRS showed mercy to those who may have fallen victim to an ERC marketing scam or became skeptical of their claims with their ERC withdrawal program in October.   

Still time to avoid repercussions

The moratorium, withdrawal program, and voluntary disclosure program are evidence of the IRS’ effort to shield taxpayers from the consequences of a fraudulent ERC claim. The withdrawal program will remain open at least until the end of 2023, and allows certain employers who filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that has not yet been paid can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible. They can also withdraw their claim if they've received a check but have not yet deposited or cashed it. Claims that are withdrawn will be treated as if they were never filed.

The IRS continues to urge claimants to review the rules for an ERC claim with a trusted tax professional and discuss their options. Fill out the form on this page if you would like a second opinion on your claim or other help from a member of our tax practice.