Small Businesses, Act Now: Limited-Time IRS Relief for Employee Retention Credit Errors

December 27, 2023

The IRS recently introduced a new Voluntary Disclosure Program for businesses that mistakenly claimed the Employee Retention Credit (ERC). Placing the blame on “aggressive marketing” and bad tax advice, the IRS is offering a chance for businesses to come forward and repay what they owe at a significant discount. The offer also waives penalties and interest for the amount owed.

But this program is only available through March 22, 2024. If you need help filing the required paperwork before the deadline or want assistance with maximizing your discount, reaching out to an IRS attorney can be beneficial in answering any questions you may have about the ERC Voluntary Disclosure Program.

At Gordon Law, we help taxpayers overcome the odds and resolve their tax problems. With years of experience guiding people safely through voluntary disclosures, we’ll break down what you need to know about this limited-time offer from the IRS.

What Is the Employee Retention Credit (ERC)?

The Employee Retention Credit (ERC) is a refundable tax credit designed to help eligible businesses that retained employees during the COVID-19 pandemic.

The ERC is available for wages paid between March 12, 2020 and January 1, 2022. For 2020, the credit could be as high as $5,000 per employee for the year. For 2021, the credit was enhanced to allow a maximum of $28,000 per employee for the year​​.

The IRS is no longer processing new ERC claims. This pause is part of their effort to manage concerns around dubious claims and aggressive marketing tactics by some promoters and advisors.

Benefits of the ERC Voluntary Disclosure Program

The ERC Voluntary Disclosure Program offers businesses the opportunity to come forward and correct erroneous ERC claims without facing standard penalties and interest charges. Key benefits include:

  • Reduced Repayment Obligation: Participants are required to repay only 80% of the ERC amount received. This is because many promoters charged fees of up to 20% for claiming the credit.
  • Waiver of Interest and Penalties: The IRS will not charge interest or penalties on the amount repaid under this program. However, if you can’t pay in full right away, any remaining balance will be subject to standard interest and penalties.
  • Protection Against Audits: Participating in this program can reduce your risk of being selected for an ERC-related business tax audit. During an audit, the IRS can look all of your business’s tax financial records and tax documentation—not just your ERC claims. Avoiding an audit reduces your risk of being assessed additional tax and penalties.

This initiative is part of the IRS’s broader effort to eliminate fraudulent activities and assist businesses that have been misled by “aggressive” ERC marketing tactics. It aims to offer a second chance to affected businesses, particularly smaller ones, by providing significant relief.

However, participating businesses are required to share information about the marketing professionals and advisors who provided incorrect guidance regarding the ERC. This approach helps the IRS to better understand and tackle the problem while supporting businesses in correcting their claims.

The ERC Discount: Who’s Eligible?

The ERC Voluntary Disclosure Program is specifically tailored for certain groups of employers who may have erroneously claimed the Employee Retention Credit. Generally, you can apply if you have already received the credit and have not yet heard from the IRS regarding your ERC claim.

To understand whether you or your business qualify for this program, consider the following criteria:

  • No Criminal Investigations: The employer must not be under any criminal investigation or have been notified of such an investigation.
  • No Employment Tax Examination: The employer must not be under an IRS employment tax examination for the tax period related to the ERC claim.
  • No IRS Notices: The employer must not have received an IRS demand for repayment of part or all of the ERC. (A letter denying your ERC claim is not the same as a notice or demand letter.)
  • No Third-Party Tipoffs: The IRS must not have received information from a third party suggesting that the taxpayer is not in compliance, or received information related to non-compliance from an enforcement action.
  • Outsourced Payroll: If an employer uses a third party to process payroll, then the payroll provider must apply for the Voluntary Disclosure Program on the employer’s behalf.

These eligibility criteria are designed to ensure that the program is accessible to those who genuinely need it, while also maintaining the integrity of the tax system. If you’re considering applying and want to verify your eligibility, schedule a free consultation with a tax attorney today.

How to Apply

Applying for the ERC Voluntary Disclosure Program is a straightforward process. It involves gathering the necessary information and submitting a specific form, Form 15434. Here’s a step-by-step guide:

  1. Gather Necessary Information: Start by collecting all relevant information related to your ERC claim. This includes the claim amount, tax periods involved, and details about any advisors or tax preparers who assisted with your claim.
  2. Complete Form 15434: Complete Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. This form will require detailed information about your business and the erroneous ERC claim.
  3. Submit the Form via IRS Document Upload Tool: Once you have completed Form 15434, submit it using the IRS Document Upload Tool for secure transmission to the IRS.
  4. For Outsourced Payroll: If your payroll is managed by a third party, ensure that the third-party provider completes and submits Form 15434 on your behalf using their Employer Identification Number (EIN).
  5. Wait for IRS Contact: After submission, an IRS representative will review your application and contact you to go over the next steps, offering guidance and answering any questions.
  6. Review and Sign the Closing Agreement: If your application is accepted, the IRS will send a closing agreement for you to review and sign. This finalizes your participation in the program and outlines your repayment obligations.
  7. Make Payment Arrangements: After the closing agreement is in place, arrange for repayment of the owed amount. If you’re unable to pay the full amount upfront, you may be eligible for an installment agreement.

This program is an opportunity to correct erroneous ERC claims under favorable terms, reducing potential financial and compliance risks. It’s recommended to consult with a tax professional to ensure your application is complete and accurate.

Pro Tip: If you have a large amount of debt remaining after completing the program, a tax debt attorney can help you repay what you owe with a solution that works for you. With a strong understanding of the IRS regulatory maze, we make the process as simple and stress-free as possible.

What Happens If You Miss the Deadline?

The deadline to apply for the ERC Voluntary Disclosure Program is March 22, 2024. Taxpayers are advised to take advantage of this program while it lasts.

“Our compliance activities involving these payments continue to accelerate,” says IRS Commissioner Danny Werfel, “and the disclosure program’s 80% repayment figure is much more generous than later IRS action, which includes steeper costs and greater risk. We hope these taxpayers take advantage of this window now.”

However, if you miss the deadline for the ERC Voluntary Disclosure Program, there are still options available to you.

  • IRS Demand Letters: After the Voluntary Disclosure Program window is closed, the IRS will continue sending demand letters to reclaim ERC funds that were received in error. Interest and penalties will be added to the tax owed.
  • ERC Withdrawal Process: For businesses that haven’t yet received or deposited their ERC refund, the ERC withdrawal process is a notable option. This allows for the withdrawal of the ERC claim, potentially avoiding the need for repayment, interest, and penalties associated with erroneous claims.
  • Audit Risk Management: It’s possible that tax audits will be part of the IRS’s compliance efforts in the future. It’s wise to manage this risk by reviewing your tax returns—particularly the years of 2020 and 2021—to ensure compliance.
  • Seek Professional Guidance: Given the complexities of tax laws and the specifics of the ERC, seeking guidance from tax professionals remains a prudent step. They can help navigate your options post-deadline, provide advice on managing potential audits, and assist in exploring any other relief programs that may be available.

The key is not to panic if you miss the deadline. Instead, focus on understanding your current position and the best steps forward to remain compliant and minimize potential financial impact. If you have any questions, don’t hesitate to schedule a free call with our tax team.

What Tax Preparers Need to Know

Tax preparers who assisted employers with erroneous ERC claims would be wise to seek legal defense immediately. The IRS’s focus on identifying promoters and tax preparers suggests they may open audits, civil investigations, or criminal investigations against these parties in the future.

The IRS attorneys at Gordon Law have extensive experience defending tax preparers in IRS investigations. The sooner you seek counsel, the better your chances of a favorable outcome.

Have Questions About Voluntary Disclosure? Gordon Law is Here to Guide You

Understanding the ERC Voluntary Disclosure Program can be tricky, and it’s okay if you have questions or feel a bit overwhelmed. That’s where Gordon Law comes in. Our team of experienced IRS lawyers is ready to help you every step of the way.

Whether you’re figuring out eligibility, need help with the application process, or are looking for advice on what to do next, we’ve got you covered. Reach out today for a free consultation.

Remember, getting the right advice is key to making sure you’re on the right track. With Gordon Law, you can confidently navigate the program, ensuring you meet IRS requirements and deadlines without stress. We’re here to simplify the process and provide the support you need.

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