The Internal Revenue Service (IRS) has introduced a second Employee Retention Credit (ERC) Voluntary Disclosure Program as outlined in Announcement 2024-30. This initiative is designed to address erroneous claims for the ERC, a refundable tax credit aimed at supporting businesses and tax-exempt organizations that continued to pay employees during the COVID-19 pandemic under specific conditions.

Background and Purpose – The ERC was established to provide financial relief to businesses that were either fully or partially suspended due to government orders, experienced a significant decline in gross receipts, or were classified as recovery startup businesses during the pandemic. However, the IRS has identified concerns regarding fraudulent claims and misleading advertisements that have led to improper ERC claims.

The first ERC Voluntary Disclosure Program, which concluded on March 22, 2024, saw over 2,600 participants. It allowed employers to resolve their improper claims by retaining 20% of the claimed ERC amount while settling their employment tax obligations. The second program continues this effort, albeit with a reduced retention rate of 15% for participants.

Eligibility Criteria – To participate in the second ERC Voluntary Disclosure Program, applicants must meet several criteria:

• Only Available for 2021 Claims: The program is limited to ERC claims filed for the 2021 tax periods and for which the employer received a credit or refund prior to August 15, 2024.
• Non-Criminal Status: Participants must not be under criminal investigation or have been notified of such intentions by the IRS.
• Third-Party Information: The IRS should not have received third-party information indicating noncompliance.
• Examination Status: Participants should not be under an employment tax examination for the relevant periods.
• Recapture and Repayment Notices: Participants must not have been notified of ERC recapture or received a demand for repayment.

Program Terms – The second ERC Voluntary Disclosure Program offers several key terms:

Employment Tax Adjustments: Participants are not entitled to any ERC for the periods in question and must remit 85% of the claimed amount back to the Treasury.

Interest and Penalties: Participants will not be required to repay overpayment interest, and no underpayment interest will apply if full payment is made before executing the closing agreement. The IRS will not impose civil penalties related to the underpayment of employment tax attributable to the claimed ERC.

Income Tax Effects: Participants are not required to amend their income tax returns to adjust wage expenses related to the ERC.

Preparer/Advisor Information: Participants must disclose information about any preparers or advisors involved in the ERC claim.

Application Process – Participants must submit Form 15434, the Application for Employee Retention Credit Voluntary Disclosure Program, by November 22, 2024. This form must be completed under penalties of perjury and include detailed information about the taxpayer and the claimed ERC.

Payments should be made through the Electronic Federal Tax Payment System (EFTPS), with separate payments for each tax period. Participants unable to make full payments may request alternative arrangements, such as installment agreements.

Closing Agreement – Upon submission of the required information, the IRS will prepare a closing agreement, which participants must sign and return within 10 days. This agreement finalizes the terms of the settlement and ensures compliance with the program’s requirements.

The second ERC Voluntary Disclosure Program represents a critical opportunity for businesses to rectify erroneous ERC claims without facing severe penalties or litigation. By participating, businesses can resolve their tax liabilities while retaining a portion of the claimed credit.

If you have questions or need assistance, please contact this office.