The Internal Revenue Service (IRS) has initiated a voluntary disclosure program targeting businesses that erroneously claimed the Employee Retention Credit (ERC) during the pandemic. Running until March 22, this program allows employers to repay 80% of the received ERC without penalties and interest. This step is part of the IRS's broader crackdown on the aggressive marketing and misuse of ERCs by various firms.
For employers unable to return the full 80%, the IRS may consider installment agreements, although these will incur penalties and interest. The 80% repayment rate was chosen considering many promoters' fees, which often left recipients with less than the full claim amount.
Originally, the ERC was intended as a refundable tax credit for businesses that maintained payroll during COVID-19-related disruptions or experienced significant revenue declines. However, many businesses were misled into filing incorrect claims by ERC mills. The IRS is actively pursuing these cases, with over 300 criminal investigations and thousands of audits for nearly $3 billion in claims.
Employers with pending ERC claims are encouraged to use a separate withdrawal program to avoid future penalties and interest. To date, this has led to over $100 million in withdrawals. The IRS is also intensifying its audits and investigations and has recently sent out 20,000 denial letters for ERC claims.
To participate in the disclosure program, employers must provide detailed information about their claims and the advisors who assisted them. Employers who've already received the ERC but aren't entitled to it can apply, provided they're not under criminal investigation or IRS examination for the relevant period, and haven't already been demanded repayment.
Applicants must file Form 15434 through the IRS's Document Upload Tool, and third-party payroll providers must use their EIN for submission. Once applied, an IRS representative will review the application, and if approved, a closing agreement will be mailed. The employer must then repay 80% of the ERC via the Electronic Federal Tax Payment System.
IRS Commissioner Danny Werfel acknowledged the challenges faced by misled employers and expressed the program's aim to provide a fair resolution. With the ongoing crackdown, the IRS is sending out additional letters with tax adjustments to recapture wrongly claimed ERCs, signaling a firm stance on correcting the issue.
Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued on an almost daily basis regarding the ERC and PPP, and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or refund process. Contact us today.