IRS Announces ERC Voluntary Disclosure Program
Interested taxpayers must apply by March 22, 2024
Today, the IRS announced its long-awaited employee retention credit (ERC) voluntary disclosure program, and its terms are very favorable to taxpayers. Taxpayers must execute a closing agreement under §7121 with the IRS to participate in the program.
The IRS also released frequently asked questions concerning the ERC voluntary disclosure program terms and procedures.
It is important to note that this ERC voluntary disclosure program is distinct and separate from the IRS’s general voluntary disclosure practice outlined in Internal Revenue Manual 22.214.171.124 (09-17-2020), Voluntary Disclosure Practice. That program is reserved for taxpayers who have committed tax or tax-related crimes and have criminal exposure due to their actions.
Any participant that has claimed the ERC and has received a credit or refund is eligible to participate in the program provided that:
The participant is not under criminal investigation, and they have not been notified that the IRS intends to commence a criminal investigation,
The IRS has not received information from a third party alerting the IRS to the participant’s noncompliance, nor has the IRS acquired information directly related to the noncompliance from an enforcement action,
The participant is not under an employment tax examination by the IRS for any tax period(s) for which the taxpayer is applying for the program, and
The participant has yet to receive notice and demand for repayment of all or part of the claimed ERC.
The participant is not eligible for or entitled to any ERC, including the refundable and non-refundable portions, for the tax period(s) at issue. If the taxpayer is partially eligible for a quarter, it cannot be included in the program.
If the taxpayer previously filed an amended employment tax return to eliminate all of the ERC, they are ineligible for the program for the amended period(s); however, if the taxpayer filed the amended employment tax return(s) before December 21, 2023, the IRS will review the program application on a case-by-case basis for eligibility.
If you find value in Tom Talks Taxes, please become a free or paid subscriber today.
The participant must remit only 80% of the claimed ERC back to the IRS, including both the refundable and non-refundable portions, but the participant will not be required to repay any overpayment interest received.
If the participant makes full payment of 80% of the claimed ERC prior to executing the closing agreement, no underpayment interest will apply to the repaid ERC amounts. If the IRS approves a request for an installment agreement, interest may accrue from the agreement date.
Participants are not required to reduce wage expenses with respect to any of the previously claimed ERC. If they had not previously reduced wage expense by any of the claimed ERC, participants need not file amended returns or administrative adjustment requests (AARs) to reduce wage expense. If they had previously reduced wage expense by any of the claimed ERC, participants should not reduce wage expense by any of the claimed ERC if they file an amended return or AAR adjusting the previous reduction to wage expense. A participant has no income with respect to the resolution of the employment tax obligation by remittance of payment of only 80% of the claimed ERC, including both the refundable and non-refundable portions.
The IRS will not assert civil penalties related to the employment tax underpayment attributable to the claimed ERC against a participant who remits full payment of 80% of the claimed ERC prior to executing the closing agreement.
If a return preparer or advisor assisted or advised the participant with any portion of the claim for credit or refund, the participant will provide the name, address, and phone number of the preparer(s) or advisor(s) who assisted with the claim for credit or refund and a description of services provided by the preparer or advisor.
Participants in the program must notify the IRS of their election by completing and submitting Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, on or before 11:59 pm local time on March 22, 2024. Participants must submit Form 15434 and any required attachments electronically via the Document Upload Tool.
If the program submission includes a tax period ending in 2020, the participant is also required to include a properly completed and signed Form SS-10, Consent to Extend the Time to Assess Employment Taxes.
Payment should be made separately for each tax period via EFTPS upon submission of Form 15434. For each EFTPS payment, select the category “Advanced Payment.” Full payment of the liabilities under this program should be made by the date the closing agreement is executed by the participant. Participants unable to remit full payment may be considered for an installment agreement.
The IRS will prepare a closing agreement and the taxpayer must sign and return it within 10 days of the IRS mailing date; the IRS may grant an extension for good cause. Closing agreements are final and conclusive determinations for that tax period and cannot be reopened except in cases of fraud, malfeasance, or misrepresentation of material facts. See Treas. Reg. §301.7121-1 and Internal Revenue Manual 32.3.4, Closing Agreements Covering Specific Matters, for additional information.
An S corporation that is not a recovery startup business received the following ERC amounts for quarters that were not eligible for the ERC in February 2023:
2nd quarter of 2021: $76,269 credit and $2,214 of interest, for a total of $78,483
3rd quarter of 2021: $83,789 credit and $2,261 of interest, for a total of $86,050
In addition, the S corporation did not amend its tax returns to reduce the wage expense with respect to these quarters.
The S corporation must file Form 15434 by March 22, 2024 to participate in the ERC voluntary disclosure program. It will repay $61,015 for the 2nd quarter of 2021 and $67,031 for the 3rd quarter of 2021, for a total of $128,046. If these amounts are paid via EFTPS prior to execution of the closing agreement, there are neither penalty nor interest accruals on those amounts.
The S corporation does not have to amend its 2021 tax returns to reduce wage expenses with respect to these quarters. The S corporation will recognize $4,475 in interest income with respect to the ERC refunds in tax year 2023.
Join the Conversation
As a paid subscriber, you can discuss this topic in the comments section. Please keep the discussion related to this edition’s topic.
If you are interested in working with me throughout the year on challenging tax issues and improving your tax practice, consider applying for the Inner Circle. There are several open spaces available starting January 1, 2024.