Understanding the New ERC Voluntary Disclosure Program: A Guide for Employers

The IRS recently introduced the Employee Retention Credit Voluntary Disclosure Program (ERC-VDP), a significant development for businesses navigating post-pandemic tax relief measures. This program is especially relevant for organizations that have claimed the Employee Retention Credit (ERC) but later determined they were ineligible.

Key Features of the ERC-VDP:

  • Repayment Flexibility: Participating businesses need to repay only 80% of the erroneously claimed ERC.
  • No Additional Penalties: No penalties or interest will be charged on the ERC amount if paid in full (minus the 20% reduction) by the time of the closing agreement with the IRS.
  • Simplified Compliance: The program allows businesses to avoid amending income tax returns to adjust for wage expenses.

Eligibility and Application:

  • Eligible entities include businesses, tax-exempt organizations, and government entities.
  • Applicants must not be under IRS audit or criminal investigation and must acknowledge full ineligibility for the ERC they received.
  • The application involves submitting Form 15434 and, if applicable, Form SS-10 by March 22, 2024.

Benefits for Participating Businesses:

  • Reduced Payback Amount: A significant relief as only 80% of the ERC needs to be repaid.
  • Avoidance of Complex Adjustments: No need to amend tax returns related to wage deductions.
  • Certainty and Closure: A closing agreement with the IRS provides clarity and finality.

The ERC-VDP represents an opportunity for businesses to rectify their tax positions concerning the ERC with reduced financial impact and administrative burden. As your accounting advisors, we can assist you in assessing your eligibility for the ERC-VDP and guide you through the application process. Our aim is to provide clarity and support as you navigate these important tax decisions.

Source: https://www.journalofaccountancy.com/news/2023/dec/erc-voluntary-disclosure-program-requiring-80-percent-claim-payback-launched.html

Source: https://www.irs.gov/coronavirus/employee-retention-credit-voluntary-disclosure-program