Per the notice below, the United States Internal Revenue Service (IRS) is launching a second Employee Retention Credit (ERC) voluntary disclosure program to resolve incorrect ERC claims.

IRS provides details of second Employee Retention Credit Voluntary Disclosure Program; program for improper claims open through Nov. 22 

The Internal Revenue Service urged businesses that have received Employee Retention Credit payments to recheck eligibility requirements and consider the second Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP) to resolve incorrect claims without penalties or interest.  The second ERC-Voluntary Disclosure Program will run through Nov. 22, 2024, and allow businesses to correct improper payments at a 15% discount and avoid future audits, penalties and interest.  The reopening of ERC Voluntary Disclosure Program is designed to help businesses with questionable claims to self-correct and repay the credits they received after filing ERC claims in error.  Many of these claims were driven by aggressive marketing from unscrupulous promoters.  To help businesses caught in this situation, the IRS urges businesses to review important warning signs and eligibility requirements, and to talk to a trusted tax professional to see if the VDP is a good option.  The IRS’s ERC Eligibility Checklist can also help businesses understand eligibility requirements and suggest next steps.  As the IRS continues intensifying compliance work involving improper ERC claims, the VDP can protect businesses from potential costly compliance action in the future, such as audits, full repayment, penalties, and interest.  Full details are available in IRS Announcement 2024-30, also released today.  The IRS’s claim withdrawal program remains open for businesses whose ERC claims haven’t been paid yet.

Details about the second ERC Voluntary Disclosure Program

Interested employers must apply to the second ERC Voluntary Disclosure Program by Nov. 22, 2024.  Applicants that the IRS accepts into the program will need to repay only 85% of the credits they received.  This second round of the program is open for tax periods in 2021.  Employers can’t use the second VDP to disclose and repay ERC money from tax periods in 2020.  If the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay that interest.  Employers who are unable to repay the required 85% of the credit may be considered for an Installment Agreement on a case-by-case basis, pending submission and review of Form 433-B, Collection Information Statement for Businesses, and all required supporting documentation.  Form 433-B is available on IRS.gov.  The IRS will not charge program participants interest or penalties on any credits they timely repay.  However, if an employer can’t repay the required 85% of the credit at the time they sign their closing agreement, they’ll be required to pay penalties and interest in connection with an alternative payment arrangement such as an installment agreement.  To qualify for this program, employers must provide the IRS with the names, addresses, telephone numbers, and details about the services provided by any advisors or tax preparers who advised or assisted them with their claims.  The IRS has provided a set of Frequently Asked Questions about the second ERC Voluntary Disclosure Program to help employers understand the terms of the program.

ERC Voluntary Disclosure Program: Who can apply?

A variety of ERC recipients can apply for the second ERC Voluntary Disclosure Program.  Any employer who already received the ERC for a tax period in 2021 for which they weren’t entitled can apply if the following are also true:

• The employer hasn’t already applied to the first ERC VDP for the same tax periods.  The IRS is still processing VDP applications from the first program.  Taxpayers should not reapply for the same periods.
• The employer isn’t under criminal investigation.
• The employer isn’t under an IRS employment tax examination for the tax period for which they’re applying to the VDP.
• The employer hasn’t received a Letter 6577-C, Employee Retention Credit (ERC) Recapture, or an IRS notice and demand for repayment of part or all of its ERC claim.
• The employer hasn’t already filed an amended return to eliminate their ERC.
• The IRS hasn’t received information from a third party or directly from an enforcement action that the taxpayer is not in compliance.

How to apply

To apply, employers must file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov, and submit it through the IRS Document Upload Tool.  Employers are expected to repay their full ERC, minus the 15% reduction allowed through the VDP.  Under certain conditions, employers who aren’t able to pay the amount in full will have the option to set up an installment agreement.

Employers who outsource their payroll must apply to VDP through the third party

Many employers outsource their payroll obligations to a third party who reports, collects and pays employment taxes on the employer’s behalf using the third party’s Employer Identification Number.  In this situation, the third party, not the employer, must file Form 15434.  See the form and its instructions for details.

Next steps after an application is approved

Once the employer has applied to the VDP and submitted their Form 15434, an IRS employee will contact them to go over the application and answer any questions.  If the IRS approves the employer’s application, they will mail the employer a closing agreement.  The employer must then repay 85% 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.  VDP participants unable to repay 85% of the ERC they received in full may enter into an installment agreement with the IRS to pay over time.  Penalties and interest will apply under the standard installment agreement policy, so the IRS encourages those who can’t pay in full to consider getting a loan from a financial institution to avoid these costs.  Once payment has been made, the employer must return the signed closing agreement to the IRS.