The IRS recently announced a Voluntary Disclosure Program (“VDP”) for employers who filed erroneous Employee Retention Credit (“ERC”) claims. Announcement 2024-3 outlines the eligibility requirements and specific instructions on how to participate.
The ERC is a refundable payroll tax credit created in March 2020 that provided employers with payroll funding during the COVID-19 pandemic. In the following years, however, the IRS became increasingly concerned about firms that gave employers misleading information about the eligibility rules, leading to the filing of erroneous claims.
By participating in the VDP, employers can avoid potential civil litigation, penalties, and interest associated with the erroneously claimed credits. The IRS is allowing participants to retain 20% of the ERC claim received and any overpayment interest received. Participants do not need to adjust their wage deduction on their income tax returns for any erroneously claimed credit amount.
According to Notice 2024-3, an employer must have received an ERC credit or refund to be eligible. Additional eligibility requirements are:
- The participant is not under criminal investigation, and they have not been notified that the IRS intends to commence a criminal investigation;
- The IRS has not received information from a third party alerting the IRS to the participant’s noncompliance, nor has the IRS acquired information directly related to the noncompliance from an enforcement action;
- The participant is not under an employment tax examination by the IRS for any tax period(s) for which the taxpayer is applying for this Voluntary Disclosure Program; and
- The participant has not previously received notice and demand for repayment of all or part of the claimed ERC.
Applications to the VDP must be submitted by March 22, 2024. If participants are not able to make a full payment of 80% of the ERC claim, they may request an installment agreement.
If you have any questions, please don’t hesitate to contact your WG advisor.
