IRS Announces Voluntary Disclosure Program related to ERC

ARTICLE | January 05, 2024

The Internal Revenue Service (IRS) recently announced a new voluntary disclosure program aimed at employers who have potentially misused the Employee Retention Credit (ERC). This program, set to expire on March 22, allows employers to pay back questionable ERCs at a discounted rate.

The ERC was originally introduced as part of the CARES Act in 2020 to incentivize employers to retain workers during the COVID-19 pandemic. However, its misuse, often due to misunderstanding or misinterpretation of the credit’s complex rules, has led to the IRS establishing this voluntary disclosure program.

Under the new program, employers who have claimed the ERC inappropriately can voluntarily disclose this to the IRS and repay a portion of the credit, thereby limiting potential penalties and interest. The IRS has stated that it will not impose penalties beyond the understatement penalty if taxpayers take advantage of this program.

To participate in the program, taxpayers must apply by March 22 and voluntarily disclose full details of their questionable ERC claims. This information should include the quarters involved, the amount of credit claimed, and a brief explanation of why the credits are questionable.

According to the IRS, the benefit of participating in the program is that it allows taxpayers to resolve the issue without undergoing a formal examination process. Moreover, the understatement penalty will replace any other accuracy-related penalties that might be applicable.

Applicants should be aware that the IRS will not accept any application if they are currently under examination for the ERC. If a taxpayer is under examination for other issues, they can still apply for the program, but the ERC issue will be addressed separately.

The new voluntary disclosure program is part of the IRS’s broader efforts to enforce compliance and promote fairness in the tax system. It recognizes that many employers may have inadvertently claimed the ERC incorrectly due to its complexity.

In conclusion, the IRS voluntary disclosure program for ERC provides a unique opportunity for employers to rectify errors in their ERC claims without incurring heavy penalties. However, the program is short-lived and employers are encouraged to take advantage of it by March 22.

For more detailed guidance, contact our ERC experts or visit the IRS website at this link. 

Disclaimer: This article is for informational purposes only and does not provide legal, tax, or accounting advice. For advice on your specific situation, please consult your own attorney, tax, or accounting professional.