The IRS has introduced a second voluntary disclosure program for businesses to repay Employee Retention Credits (ERC) they received by mistake. Here’s a breakdown of what you need to know:
Program Overview
- Eligibility Periods: Only covers ERC claims for tax periods in 2021:
- March 31, 2021
- June 30, 2021
- September 30, 2021
- December 31, 2021
- Deadline: The program ends on November 22, 2024.
- Repayment Terms: Participants must repay 85% of the credit received. No interest or penalties are charged if payment is made promptly.
Key Benefits
- No Audit Guarantee: Employment tax audits won’t apply to ERC claims resolved through this program.
- Installment Options: If full repayment isn’t possible, the IRS may offer installment agreements (subject to penalties and interest).
Eligibility Requirements
You can apply if:
- The claim pertains only to the 2021 tax period.
- You haven’t applied for the first ERC disclosure program.
- You’re not under a criminal investigation or an IRS employment tax examination.
- You haven’t received an IRS notice or repayment demand.
- You haven’t amended your returns to remove the ERC.
- No enforcement action or third-party compliance information has been received by the IRS.
Common Red Flags
The IRS warns against these errors in ERC claims:
- Claiming for periods not eligible or too many employees.
- Misusing government orders or supply chain disruptions as justification.
- Claiming wages used for PPP loan forgiveness.
- Including wages of majority owners or family members.
- Failing to prove revenue decline or operational suspension.
How to Apply
- Form Required: Submit Form 15434 through the IRS Document Upload Tool.
- Payroll Outsourcing: If a third party manages your payroll, they must file the form for you.
- Professional Guidance: Consult a tax expert to avoid missteps.
Pending Litigation
- Employers may hesitate due to lawsuits challenging the IRS’ authority to issue ERC-related guidance (e.g., Notice 2021-20). One notable case argues that the IRS improperly narrowed eligibility for the ERC.
Next Steps After Application
- Review Process: An IRS representative will contact you for application review.
- Payment: Immediate payment is expected upon approval. Installments are possible, but penalties and interest will apply.
For further details, consult IRS Announcement 2024-30 or their FAQ section on the ERC Voluntary Disclosure Program.
