On December 21, 2023, the Internal Revenue Service (IRS) rolled out a new Voluntary Disclosure Program effective immediately to remain open until March 22, 2024. This program provides businesses an opportunity to rectify erroneously filed Employee Retention Credit (ERC) claims by voluntarily repaying 80% of the funds received.
Since October 19, 2022, the IRS has been cautioning businesses targeted by aggressive companies promoting these credit claims. The warnings, originally posted on October 19, 2022, and subsequently reiterated on November 7, 2022, March 7, 2023 and September 14, 2023 have been reinforced with the suspension of new ERC claims being processed. Since this suspension, the IRS has already mailed out 20,000 denial letters to ERC claimants.
In addition to the new Voluntary Disclosure Program, the IRS continues to have a Voluntary Withdrawal Program, allowing entities to remove pending ERC claims without incurring interest or penalties.
An outline of both the Voluntary Withdrawal Program and the new Voluntary Disclosure Program are below.
Voluntary Withdrawal Program
This program is available to businesses meeting all of the following criteria:
- An ERC claim was made by filing an adjusted employment tax return (Form 941-X, 943-X, 944-X, or CT-1X).
- The adjusted employment tax return was filed only to claim the ERC and no other adjustments were included. (Note if other changes were included, the entity would need to file an amended return to remove the ERC claim).
- The business entity wishes to withdraw the entire amount of the ERC claim.
- The IRS has not paid the amount claimed, or the amount has not been cashed or deposited if the IRS has issued payment.
To request an ERC claim withdrawal, businesses can follow one of the three methods below based on their situation:
A. If the refund has not been received and the claim is not under audit.
- Make a copy of the adjusted return with the ERC claim to be withdrawn.
- Write ‘Withdrawn’ in the left margin of the first page.
- In the right margin of the first page:
- Have an authorized person sign and date it.
- Write their name and title next to their signature.
- Fax the signed copy to the IRS claim withdrawal fax line at (855) 738-7609.
For ERC claims filed by professional payroll companies or Professional Employer Organizations (PEOs), consultation with them may be necessary for withdrawal.
B. If the refund has not been received and the claim is under audit.
- Prepare the claim withdrawal request as outlined above in ‘A’, but instead of faxing it, do the following:
- If you’ve been assigned to an IRS examiner, communicate with your examiner about how to submit your withdrawal request directly to them.
- If you haven’t been assigned to an IRS examiner, respond to your audit notice with your withdrawal request, using the instructions in the notice for responding.
C. If a refund check has been received but not cashed or deposited.
- Prepare the claim withdrawal request as outlined above in ‘A’, but instead of faxing it, do the following and mail to the IRS at the address shown below.
- Write ‘Void’ in the endorsement section on the back of the refund check.
- Include a note that says ‘ERC Withdrawal’ and briefly explain the reason for returning the refund check.
- Make copies for your records of the front and back of the voided check, the explanation notes and the signed and dated withdrawal request page.
Cincinnati Refund Inquiry Unit
PO Box 145500
Mail Stop 536G
Cincinnati, OH 45250
Entities eligible for the Voluntary Withdrawal Program are essentially requesting the IRS not to process the entire adjustment employment tax return that was previously filed. Withdrawn claims are treated as if they were never filed, with no penalties or interest imposed by the IRS. It is important to note that withdrawing a fraudulent claim will not exempt an entity from potential criminal investigation and prosecution.
If an entity has already received and deposited the ERC payment, the Voluntary Withdrawal Program is unavailable, but eligibility for the Voluntary Disclosure Program might be possible.
Voluntary Disclosure Program
Entities eligible for the Voluntary Disclosure Program must meet the following criteria:
- The employer is not under criminal investigation.
- The employer is not under an IRS employment tax examination for the tax period for which they are applying to the Voluntary Disclosure Program.
- The employer has not received an IRS notice and demand for repayment of part or all of 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.
To apply for the Voluntary Disclosure Program you must do the following:
- File Form 15434 ‘Application for Employee Retention Credit Voluntary Disclosure Program’ by submitting the completed form using the IRS Document Upload Tool. For entities outsourcing their payroll, the third party must file Form 15434.
- Upon IRS approval, the entity will receive a closing agreement ‘ERC-VDP’.
- The entity must then repay 80% of the ERC money received either online or by phone, using the Electronic Federal Tax Payment System (EFTPS). The interest paid with the original ERC refund need not be repaid, and interest and penalties do not apply if the 80% is repaid before submitting the signed closing agreement to the IRS.
- Entities unable to pay the 80% in full may be eligible for an installment agreement. Note penalties and interest will apply from the installment agreement date. Therefore, it may be beneficial for an entity to secure a loan to be able to make the full payment directly to the IRS to prevent incurring penalties and interest.
The 20% portion of the ERC money the entity is permitted to keep under the Voluntary Disclosure Program is not taxable income to the entity.
Installment Agreement
To be considered for an installment agreement for payment of an entity’s ERC-VDP liability, entities must use the IRS Document Upload Tool to submit the following by 11:59pm on March 22, 2024:
- A signed and completed Form 433-B ‘Collection Information Statement for Businesses.’
- All documentation required to support Form 433-B, including:
- Verification of assets, encumbrances, income and expenses reported,
- Profit & Loss statements from the past 3-12 months, and
- Bank and investment statements, loan statements, financing statements, bills or statements for recurring expenses from the past 3-12 months.
If approved, the IRS will issue Form 433-D ‘Installment Agreement’ with the ERC-VDP closing agreement. Entities must sign and return Form 433-D with the signed closing agreement.
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