IRS To Allow Recipients of Ineligible ERC Funds To Pay Them Back at a Discounted Rate

The Internal Revenue Service announced a new Voluntary Disclosure Program that gives at employers who received erroneous Employee Retention Credit funds the opportunity pay them back at a discounted rate.

The special program runs through March 22, 2024, and allows businesses to pay back erroneous funds at 80 percent of the claim received. If the IRS paid interest on an ERC claim already paid and the business is taking advantage of this voluntary program, that interest does not have to be repaid.

The Voluntary Disclosure Program“is a limited time offer,” IRS Commissioner Daniel Werfel said during a December 21, 2023, press teleconference.“From discussions we’ve had with taxpayers and tax professionals around the country, we understand that there are many employers eager to correct their error but remain concerned about their ability to payback the portion of the credit that has been lost to promoters that brough them into this mess.”

The 80 percent accounts for fees that a so-called ERC mill may have collected to help a business file an ERC claim that they were ultimately not eligible for and is a reflection that the business may not actually have received the full amount of the claim.

Those who cannot make the payment in full at the time of the application approval will have to option to make installment payments, with penalties and interest applying.

In addition, as part of the application process, program participants must name names.

“Those employers participating in the disclosure program must provide the IRS with the names and details of any advisors who advised or assisted them with their claim,”Werfel said.“This will help with our ongoing efforts to gather information on promoters who created this situation by aggressively pushing people to apply for the credit.”

Any employer who has already received ERC funds they were not entitled to can apply to be a part of the Voluntary Disclosure Program if they meet the following criteria:

• The employer is not under criminal investigation and has not been notified they are under criminal investigation;
• The employer is not under an IRS employment tax examination for the tax period in 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 of the ERC; and
• The IRS has not received information from a third party that the taxpayer is not in compliance or had not acquired information directly related to the noncompliance from an enforcement action.

Those wishing to participate in the program will need to fill out Form 15434 , Application for Employee Retention Credit Voluntary Disclosure Program. Application forms must be submitted electronically through the IRS Document Upload Tool.

Employers that outsource their payroll who want to apply to the program must apply through their third-party payroll administrator.

Werfel said it was too early to estimate how much money the IRS expects to collect from this voluntary program.

The program is part of an ongoing campaign by the agency to combat ERC mills that, due to aggressive marketing, may have misled businesses to file for and receive ERC funds, meant to help companies during the COVID-19 pandemic, that they may not have been eligible for.

This program builds upon a current program that allows companies to withdraw potentially ineligible claims that have yet to be processed. Werfel said that there has already been $100 million in ERC claims withdrawn by employers under this program. He added that there is still time to withdraw claims that have not been processed yet if employers review the rules and determine that their claim is ineligible for ERC funds.

The IRS has also halted processing of new claims as it more thoroughly examines claims already received to validate their eligibility after there was a spike in claims filed due to ERC mills encouraging businesses to file claims even though they might not be eligible for them.

As part of the more thorough review of current claims received, the IRS said it has mailed out more 20,000 denial letters to ERC claims earlier this month. Additionally, the agency has thousands of audits under way. The criminal investigations teams also have more than 300 investigations underway involving nearly $3 billion in ERC funds, Werfel said, adding that up to 20,000 addition letters are being readied that have identified erroneous or excessive ERC payments covering tax year 2020, with more planned for the following tax year. A recipient of one of these letters would not be eligible for the Voluntary Disclosure Program.

By Gregory Twachtman, Washington News Editor