On December 21, the Internal Revenue Service (IRS) announced a Voluntary Disclosure Program as part of its ongoing initiative to combat the misuse of Employee Retention Credit (ERC) claims, while also protecting unsuspecting taxpayers who were targeted by aggressive promoters. This Voluntary Disclosure Program provides an option for taxpayers who already received the ERC but have not yet heard from the IRS. 

What is the Employee Retention Credit?

The ERC is a refundable tax credit that was created to help struggling companies keep employees on the payroll during the COVID-19 pandemic. In September 2023, the IRS paused the processing of new claims to address the overwhelming number of fraudulent ERC claims. As of early December, the IRS reportedly rejected more than 20,000 claims that did not meet the basic requirements to claim the ERC. 

Who Qualifies for the Voluntary Disclosure Program?

To qualify for the Voluntary Disclosure Program, a taxpayer must provide the IRS with the names, addresses, and telephone numbers of any advisors or tax preparers who advised or assisted them with their claim and details about the services provided. Any taxpayer that has claimed the ERC and has already received a credit or refund is eligible to participate if the following are true: 

1. The taxpayer is not under criminal investigation, and they have not been notified of the IRS’ intent to open a criminal investigation.
2. The IRS has not received information from a third-party.
3. The IRS is not under an employment tax examination for any tax period for which the taxpayer is applying for this Voluntary Disclosure Program.
4. The taxpayer has not previously received notice and demand for repayment of all or part of the claimed ERC. 
    

What are the Terms of the Voluntary Disclosure Program?

If the taxpayer qualifies and properly applies for the Voluntary Disclosure Program, then the taxpayer will only have to pay back 80% of the ERC received. If the IRS paid interest on the amount received, the taxpayer does not need to repay interest. 
In the event that the taxpayer cannot repay 80% of the credit received, then the IRS may consider an installment agreement on a case-by-case basis. The taxpayer will be required to pay penalties and interest in connection with entering into an installment agreement.

How to Apply

The taxpayer must file Form 15434, an application for the Employee Retention Credit Voluntary Disclosure Program, available here. If the taxpayer claimed the ERC under a third-party’s employer identification number (EIN), then the third-party must file Form 15434. 

Those interested in applying for this program must apply by March 22, 2024.

If you have questions about the ERC's Voluntary Disclosure Program, please contact Elaine Yap, Ann Murray, or another member of the Nelson Mullins Tax and Benefits practice group.