Were you pushed to file an employee retention credit (ERC) in error? Under a new voluntary disclosure program, affected businesses can pay back 80% of the claim without incurring interest or penalties. See if you qualify.

What is the Employee Retention Credit?

The Employee Retention Tax Credit (ERC) is a refundable tax credit based upon qualified wages an employer pays to its employees applied against certain employment taxes (Social Security, Medicare, etc.)

Generally, there are 2 ways to qualify for the credit –

• The 1^st criteria – You experienced a full or partial suspension of operations during 2020 or 2021 because of governmental orders limiting commerce and impacting your business.

• The 2^nd criteria – You had at least a 50% decline in gross receipts in any calendar quarter in 2020 compared to the same quarter in 2019 (20% decline in gross receipts in any calendar quarter in 2021 (or Q4 2020) compared to the same quarter in 2019).

For quite some time now, the IRS has been inundated with false claims for the credit. Many employers have been pushed to submit claims even though they are ineligible.

What is the voluntary disclosure program and who is eligible?

The ERC voluntary disclosure program allows employers to repay 80% of a falsely claimed ERC claim without penalty or interest if they meet these requirements:

• The employer must provide the IRS with the names, addresses and telephone numbers of any tax preparers or advisors who advised or assisted them with their claim
• The employer cannot be under criminal investigation or have been notified that they are under criminal investigation
• The employer must not have received correspondence from the IRS demanding partial or complete ERC repayment
• The employer must not be under an IRS employment tax examination (for the tax period they are applying to the program)

Additionally, if the IRS has received information from a third party that the employer is not in compliance, that employer would not qualify.

Why 80%?

Many ERC promoters collected a percentage fee upon the ERC claim submission to the IRS (or upon claim payment) and the recipients never received the full amount—hence the 80% repayment.

How to apply

You can access the application here: Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. Keep in mind that you need to use the IRS Document Upload Tool to submit the form.

What if you can’t pay the full 80%?

Eligible employers are expected to repay the full ERC claim amount, except the 20% reduction allowed through the program. If you cannot pay the full amount, you do have the option to set up an installment agreement (under certain conditions).

What if you outsource your payroll?

If you outsource your payroll to a third party who reports, collects and pays employment taxes on your behalf, the third party is required to file form 15434.

What happens once your application has been approved?

You will receive a closing agreement if the IRS approves your application. You will then be prompted to repay the 80% either online or by phone through the Electronic Federal Tax Payment System (EFTPS).

What other ERC fraud initiatives are in place?

As we reported a few weeks back in our blog, IRS Expands Crackdown on False ERC Claims, beginning December 6, 2023, the IRS has sent 20,000 initial disallowance letters to taxpayers who were deemed ineligible for the credit. The letter, Letter 105 C, Claim Disallowed, aims to help taxpayers avoid audits, interest, penalties and future repayments.

As of December 21, 2023, the IRS started sending an additional 20,000 letters with proposed tax adjustments aimed at recapturing the falsely claimed ERC.

Questions about ERC eligibility and this disclosure program? We can help.