IRS Offers Second ERC Voluntary Disclosure Program as Investigations of Improper Claims Continue

The IRS has introduced a second voluntary disclosure program (VDP) for improper Employee Retention Credit (ERC) claims under Announcement 2024-30. This new initiative targets taxpayers who improperly received ERC refunds specifically for the 2021 tax period.

The program offers these taxpayers an opportunity to voluntarily correct their claims while avoiding some of the more severe penalties that would otherwise apply. The deadline for the second VDP is November 22, 2024 and gives employers another chance to avoid full IRS enforcement actions. Like the first VDP, there are specific eligibility criteria and key requirements to participate.

Eligibility criteria

Taxpayers must meet a series of specific conditions to utilize the VDP. The program is only open to those who:

• Received an ERC refund before August 15, 2024 for the 2021 tax periods,
• Are not under criminal investigation or have not been informed by the IRS of a pending investigation,
• Have not been reported by a third-party regarding noncompliance related to the ERC,
• Are not under an employment tax examination for the period in question,
• Have not received IRS Letter 6577-C (Employee Retention Credit Recapture), and
• Have not been issued a notice and demand for repayment of the ERC.

Those who meet these criteria have the chance to voluntarily disclose and correct their ERC claims with a more favorable settlement than they might face in future IRS actions.

Key requirements for participation

Eligible taxpayers must complete several steps to participate in the VDP:

• Submit Form 15434 electronically via the IRS’s Document Upload Tool (DUT) at irs.gov/DUT on or before the November 22, 2024, deadline.
• Repay 85 percent of the claimed ERC to the Treasury. Taxpayers can retain the remaining 15 percent of the credit.
• Interest on overpayment received with the original ERC refund does not need to be repaid.
• No penalties or underpayment interest will apply if the 85 percent repayment is made in full before signing a closing agreement with the IRS.
• Amend income tax returns if necessary. Taxpayers who reduced deductible wages on their income tax returns must file amended income tax returns to reverse the adjustment. Despite the partial repayment, the adjustment on the income tax return is for 100 percent of the ERC.
• Provide details on any advisors or preparers who assisted with the ERC claim, including names, addresses, and descriptions of the services they provided.
• Submit Form SS-10 (Consent to Extend the Time to Assess Employment Taxes) if the ERC was claimed for the first or second quarters of 2021.
• Execute a closing agreement to finalize the terms of the disclosure.

Considerations for Businesses and Advisors

For businesses that claimed the ERC based on incorrect advice from third-party promoters or advisors, this program represents a crucial opportunity. The IRS has been intensifying investigations of ERC claims, and those who proactively address questionable claims through the VDP can potentially avoid more severe consequences.

Businesses and advisors should carefully evaluate whether they meet the eligibility criteria and take prompt action if appropriate. The November 22, 2024 deadline is firm, and missing it could expose businesses to more severe penalties as the IRS continues its enforcement initiatives.