Coming November deadline means companies must move quickly
The Internal Revenue Service (IRS) has announced a November 22, 2024, deadline for companies that might have incorrectly received the ERC credit during the 2021 tax period to participate in its Employee Retention Credit Voluntary Disclosure Program (ERC-VDP).
In June 2024, the IRS stated that 10-20% of Employee Revenue Credit (ERC) claims fell into its highest-risk group for erroneous claims, and another 60-70% showed an unacceptable level of risk. The ERC program was designed to help companies keep their employees on the payroll during COVID-19.
The program encourages businesses that received ERC payments to reconfirm they were eligible to receive them and, if not, to self-identify and repay the ERC at a 15% discount, reducing their tax liability while avoiding penalties and interest.
This second Voluntary Disclosure Program comes as the IRS moves more payments into processing while intensifying its work to protect taxpayers from improper claims. Recently, the agency sent 28,000 disallowance letters to businesses with high-risk claims, which could prevent up to an estimated $5 billion in improper payments. The IRS also identified 50,000 valid ERC claims to be sent for payment processing.
The program is open through Nov. 22, 2024. The first Voluntary Disclosure Program ended on March 22, 2024.
Am I eligible to apply for the ERC Voluntary Disclosure Program?
Businesses, tax-exempt organizations, and government entities may apply for the second ERC-VDP for each tax period in 2021 if they:
- Received a refund or tax credit for an ERC claimed on a 2021 employment tax return
- Now think they are not entitled to zero ERC for 2021
- Are not being audited or under criminal investigation by the IRS
- Have not been notified that the IRS was disallowing their ERC
How can I participate in the program?
Participants in the program agree to:
- Voluntarily pay back 85% of the 2021 ERC received
- Provide the IRS with any information requested
- Sign a closing agreement
What are the benefits of the program?
- Companies don’t need to repay any interest previously received with their ERC refunds.
- For payments repaid by the completion of the signed closing agreement, the IRS won’t charge penalties or interest on the ERC repayment amount.
Applicants must meet all the above criteria. If you’re not eligible because your ERC hasn’t been paid, you may be able to withdraw your ERC claim or amend a return instead.
Aldrich Insights
- If your business received an ERC payment, review the IRS’s warning signs of incorrect claims to identify potential areas of concern related to your claim.
- Have your advisor revisit any ERC claims you’ve made to ensure compliance or highlight any areas requiring additional review.
- If there was an incorrect claim, complete all required steps by the Nov. 22 deadline to take advantage of the IRS voluntary disclosure program.
- Review the IRS’s Eligibility Checklist if you didn’t claim an ERC but think you might qualify.
If you’ve received a disallowance letter, want help reviewing your claim to ensure eligibility, or need help claiming the ERC credit, let’s talk.
