Great News for Employers Who Received Questionable Employee Retention Credits

Article Highlights:

• Combating Dubious Employee Retention Credit (ERC) Claims
• New Voluntary Disclosure Program
• Employer Benefits
• Applying for the New Voluntary Disclosure Program
• When the 80% is Due
• Installment Payment Plan
• Other Ongoing ERC Initiatives
• Claim Withdrawal Still Available

Employers who obtained dubious Employee Retention Credits (ERC) can now repay them at a reduced rate according to the IRS's New Voluntary Disclosure Program. This is not the same program that the IRS originally developed for those who wish to withdraw their ERC claim but have not received payment from the IRS; that program is covered later in this article.

In an effort to counter fraudulent Employee Retention Credit claims, the IRS has stated that it would be introducing a new program to assist companies who wish to reimburse funds they have received after making false ERC claims.

NEW VOLUNTARY DISCLOSURE PROGRAM

The IRS is working to discourage aggressive marketing around the ERC that was tricking some companies into making claims, and this new initiative is a part of that effort.

By March 22, 2024, interested employers must submit an application to the ERC Voluntary Disclosure Program. The following advantages are available to those who the IRS approves for the program:

• They need only repay 80% of the credit they received.
• If the IRS paid interest on the employer’s ERC refund claim, the employer would not need to repay that interest.

Who Can Apply

Several ERC winners are eligible to apply. If the following conditions are met, any employer who previously received the ERC for a tax period but isn't eligible to do so may apply:

• 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’re applying to the Voluntary Disclosure Program.
• The employer has not received an IRS notice and demand for repayment of part or all 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.

How To Apply

To apply, an employer must first 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 Employers will be expected to repay their full ERC, minus the 20% reduction allowed through the Voluntary Disclosure Program.Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov and all required supporting documentation.

Participants in the program will not be assessed interest or penalties by the IRS on any credits they return. However, the employer will have to pay penalties and interest in connection with engaging into an installment arrangement if they are unable to return the requisite 80% of the credit at the time of signing their closure agreement.

Why does the IRS not demand that the employer pay back all of the ERC that it received? Since many ERC promoters took a percentage fee either in advance or at the moment of payment, and the receivers never got the whole amount, the IRS chose an 80% refund.

After an Application is Approved

If the IRS approves the employer’s application, they will mail the employer a closing agreement, which the employer must sign and return to the IRS within 10 days of the date the IRS mailed it. 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.Employers Who Outsource Their Payroll Must Apply Through the Third Party

Many employers contract out their payroll duties to a third party, which uses the third party's Employer Identification Number to record, collect, and pay employment taxes on the employer's behalf. In this case, Form 15434 needs to be filed by the third party, not the employer. For further information, see the form and accompanying instructions.

Other Ongoing ERC Initiatives

The new Voluntary Disclosure Program is just the latest step taken by the IRS in its ongoing fight against ERC fraud.

• In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims.
• Following concerns from tax professionals and others about aggressive ERC marketing, the IRS announced Sept. 14 a moratorium on processing new ERC claims Enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.
• Then, earlier this month, the IRS began sending an initial round of more than 20,000 letters to employers disallowing their ERC claims either because their business did not exist, or they didn’t have employees for the period covered by their claim.
• In addition to these efforts, IRS audit and Criminal Investigation work involving ERC continues to expand involving 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.

CLAIM WITHDRAWAL STILL AVAILABLE

Still Time to Withdraw Pending ERC Claims - The IRS is also continuing to accept and process requests to withdraw an employer’s full ERC claim under a special withdrawal process.

To assist small company owners and individuals who were coerced or mislead by ERC marketers or promoters into making improper claims, the IRS has developed a withdrawal option. Withdrawn claims will be handled as though they were never submitted. Penalties and interest will not be assessed by the IRS. Because fraudsters and marketers are still using aggressive tactics, the IRS is still cautioning taxpayers to proceed with great admonish before applying for the ERC.

It should be noted, nevertheless, that withdrawing a false claim does not shield the person who knowingly made the claim—or the person who helped or colluded in such behavior—from a possible criminal inquiry and prosecution.

Employers can use the ERC claim withdrawal process if all the following apply:

• They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
• They filed the adjusted return only to claim the ERC, and they made no other adjustments.
• They want to withdraw the entire amount of their ERC claim.
• The IRS has not paid their claim, or the IRS has paid the claim, but the taxpayer hasn’t cashed or deposited the refund check.

To take advantage of the claim withdrawal procedure, the special instructions at IRS.gov/withdrawmy ERC should be carefully followed and are summarized below.

• Taxpayers should speak with the payroll business whose expert payroll firm submitted their ERC claim. Whether the taxpayer filed their ERC claim individually or in a batch with other taxpayers will determine which payroll firm needs to submit the withdrawal request on their behalf.
• Taxpayers who used a computer or mobile device to fax withdrawal requests to the IRS should do so if they submitted their own ERC claims, haven't received, cashed, or deposited a refund check, and haven't been informed that their claim is being audited. A dedicated fax line has been established by the IRS to process withdrawal requests. This allows the agency to cease processing prior to the approval of the reimbursement. Taxpayers can mail their request to the IRS, but it will take longer for them to get it if they are unable to fax their withdrawal using a computer or mobile device.
• After being informed that they are being audited, employers can either reply to the audit notification or submit the withdrawal request to the designated examiner.

Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyERC.

If you have submitted an ERC claim and are concerned about its validity and would like this office to review the claim, or need assistance withdrawing a claim, please contact this office.