The Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP) will run through November 22 and allow businesses a chance to correct improper payments at a 15% discount and avoid future audits, penalties and interest. During the first disclosure program that ended in March, there were more than 2,600 applications from ERC recipients that disclosed $1.09 billion worth of credits.
The second ERC-VDP is open through November 22, 2024, for 2021 tax periods. The ERC-VDP for 2020 tax periods is no longer available. The second ERC-VDP program requires eligible businesses to:
- Complete and send an application package for the second ERC Voluntary Disclosure Program,
- Voluntarily pay back the ERC, minus 15%
- Cooperate with any requests from the IRS for more information, and
- Sign a closing agreement.
Advantages of the second ERC Voluntary Disclosure Program
There are several benefits to participating in the second ERC-VDP if the ERC for the 2021 tax periods was received but the business was not entitled to it and now wants to pay the money back:
- You need to repay only 85% of the ERC you received as a credit on your return or as a refund.
- You do not need to repay any interest you received on your ERC refund.
- You do not have to amend income tax returns to reduce the wage expense.
- The 15% reduction is not taxable as income.
- The IRS will not charge penalties or interest on the claimed ERC amount if you pay it in full (claimed ERC minus 15%) by the time you return your signed closing agreement to IRS.
- The IRS will not examine (audit) ERC on your employment tax return for tax period(s) resolved within the terms of ERC-VDP.
Who can apply to the second ERC Voluntary Disclosure Program
Businesses, tax-exempt organizations and government entities are eligible to apply for the ERC-VDP for each tax period in 2021 that meets all of the below listed requirements.
- Your ERC claimed on a 2021 employment tax return has been processed and paid as a refund, which you have cashed or deposited, or paid in the form of a credit applied to the tax period or another tax period.
- You now think that you were entitled to $0 ERC.
- You are not under employment tax examination (audit) by the IRS.
- You are not under criminal investigation by the IRS.
- The IRS has not reversed or notified you of intent to reverse all or part of your ERC. For example, you received a letter or notice from the IRS disallowing your ERC.
If you used a third-party payer to file your employment tax returns or claim your ERC, you cannot apply to the ERC-VDP yourself. You must contact the third-party payer to apply.
For more details about second ERC-VDP eligibility see Who is eligible for the second ERC-VDP.
How to apply to the second ERC Voluntary Disclosure Program
If you meet the eligibility rules for the ERC-VDP, complete an application package by:
- Preparing Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program,
- Preparing ERC-VDP Form SS-10, which is included within the Form 15434
- Ensuring that an authorized person signs your ERC-VDP application and ERC-VDP Form SS-10, and
- Following the steps in How do I submit my second ERC-VDP application package? to submit your application using the IRS Document Upload Tool by 11:59 p.m. local time on November 22, 2024.
In addition to relying on taxpayers to voluntarily correct their wrong ERC claims, the IRS says it also will mail up to 30,000 new letters to reverse or recapture potentially more than $1 billion in improper ERC claims.
The IRS currently anticipates this round of mailings could reach up to 30,000 letters this fall. These “clawback” notices potentially represent more than $1 billion in claims from Tax Year 2021 and some additional, later-filed Tax Year 2020 claims. These letters notify taxpayers that the IRS is reversing or recapturing their previous credit. Several thousand of the letters have been mailed, with more coming in upcoming weeks and into the fall.
The IRS notes that those who receive these recapture letters will be ineligible to participate in the Voluntary Disclosure Program for the calendar quarter the letter covers.
