As part of its continuing fight against questionable Employee Retention Credit (ERC) claims, the IRS recently announced a voluntary disclosure program for employers. Under the program, businesses can “pay back the money they received after filing ERC claims in error,” the IRS explains.
The program, announced December 21, 2023, came two months after the IRS ordered a moratorium through at least the end of 2023 on processing new claims for the COVID-19 relief program. The tax agency stated that the move was made “to protect honest small business owners from scams” and to safeguard the tax system from fraud.
IRS Commissioner Danny Werfel ordered the moratorium following growing concerns from inside the tax agency and from tax professionals that a substantial share of claims from the program were ineligible. In addition, the IRS stated that businesses were increasingly being put “at financial risk by being pressured and scammed by aggressive promoters and marketing.”
The special voluntary disclosure program is scheduled to run through March 22, 2024. If the IRS accepts a business into the program, the employer will need to repay only 80% of the credit money it received. If the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay that interest.
Here are some more details about the program:
The be eligible for this program, the employer must provide the IRS with the names, addresses, and telephone numbers of any advisors or tax preparers who advised or assisted them with their claims and details about the services provided.
There are also other qualifications, including:
Commissioner Werfel said the disclosure program “provides a much-needed option for employers who were pulled into these claims and now realize they shouldn’t have applied.” He added that the IRS has heard that many employers are eager to correct their errors but “remain concerned about their ability to pay back the portion of the credit that has been lost to the promoter that brought them into this mess.”
Not only will employers receive financial relief from the program but the IRS will receive “information on promoters who created this situation by aggressively pushing people to apply for the credit,” Werfel said.
There’s an application form that employers must file to participate in the program and other rules apply. Contact your tax advisor for more information.
When properly claimed, the Employee Retention Credit (ERC) is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic. The complex credit isn’t available to individuals.
The IRS reports it has received approximately 3.6 million claims over the course of the program.
The credit has precise requirements. Employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have: