Simplified Summary of the IRS’ Second Employee Retention Credit (ERC) Voluntary Disclosure Program

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:

  1. The claim pertains only to the 2021 tax period.
  2. You haven’t applied for the first ERC disclosure program.
  3. You’re not under a criminal investigation or an IRS employment tax examination.
  4. You haven’t received an IRS notice or repayment demand.
  5. You haven’t amended your returns to remove the ERC.
  6. 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

  1. Form Required: Submit Form 15434 through the IRS Document Upload Tool.
  2. Payroll Outsourcing: If a third party manages your payroll, they must file the form for you.
  3. 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.

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