IRS Unveils ERC Voluntary Disclosure Program
As a Christmas gift to taxpayers, the IRS announced a new ERC Voluntary Disclosure Program for erroneously filed ERC claims. In Announcement 2024-3, released on December 21, the IRS provides a new avenue for businesses that have been the victims of ERC promotion scams to find relief.
Under this new program, eligible employers will only have to pay back 80% of the claim received to get relief from penalties and interest. The IRS is allowing for employers to keep 20% of the claim, as they realize that many ERC mills charged a contingency to the taxpayer. If the taxpayer qualifies for this relief, they will be required to file Form 15434.
This form requires disclosure of all preparers and advisors who assisted in filing of ERC claims. With the request for this information, it is evident that the IRS will be looking into more and more of the ERC providers in the coming months.
Not all taxpayers are eligible for this new relief. Taxpayers are eligible 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; and
- The participant has not previously received notice and demand for repayment of all or part of the claimed ERC.
For most employers, this means they can apply for the program if they have not yet heard from the IRS about an erroneous claim. Taxpayers who are unable to pay the 80% can request an installment agreement with the IRS. If the IRS approves the installment plan, penalties and interest may apply. For some taxpayers, getting a loan from a financial institution may be more affordable than entering into an installment agreement with the IRS.
This comes on top of the IRS issuing 20,000 denial letters in early December and an announcement that an additional 20,000 letters with adjustments will be sent soon. These letters are only for tax year 2020 as the IRS has not started adjustments for 2021. Taxpayers and their CPAs need to seriously consider this ERC Voluntary Disclosure Program to gain relief over the coming weeks.
If you have any questions about an erroneous ERC claim, please contact McGuire Sponsel.
David Seibel is an engineering principal for the R&D Tax Credit Practice. He combines his knowledge of tax law with his engineering expertise to maximize companies’ research credits and reduce their overall tax burdens.
David ensures clients are receiving studies that meet the highest level of quality. He conducts fieldwork, produces detailed technical calculations, and builds narratives that accurately reflect each company’s research and experimentation activity.