New IRS Voluntary Disclosure Program

IR-2023-247 , Dec . 21 , 2023 , announced a new Voluntary Disclosure Program ( VDP ) to help businesses wanting to return the money they received after filing erroneous Employee Retention Credit ( ERC ) claims . This program allows repayment of only 80 percent of the claim received . Interested taxpayers must apply by Friday , March 22 , 2024 .

If the IRS paid interest on the ERC refund claim , this interest does not have to be repaid .

Employers unable to repay 80 percent of the credit when signing a Closing Agreement may be considered for an Installment Agreement on a case-by-case basis , pending submission and review of Form 433-B , Collection Information Statement for Businesses , and all required supporting documentation . Upon entering into the Installment Agreement , the employer must pay interest and penalties .

To qualify for this program , employers must provide the IRS with the names , addresses and telephone numbers of any advisers or tax preparers who advised or assisted them with the claim and details about the service provided . Further qualifications and program details are in IRS Announcement 2024-3 , Dec . 21 , 2023 .

The IRS mailed 20,000 denial letters to ERC claimants in December . The IRS also started sending up to 20,000 letters proposing to recapture erroneously claimed ERCs that are in addition to the 20,000 denials mailed earlier in December and are just for tax year 2020 .

Work continues for tax year 2021 , with more mailings planned .

IRS Commissioner Werfel stated : “… Our compliance activities involving these payments continue to accelerate and the disclosure program ’ s 80 percent repayment is much more generous than later IRS action , which includes steeper costs and greater risks …”

Who Can Apply Any employer who received the ERC for a tax period but is not entitled to it can apply if the following are true :

• The employer is not under criminal investigation and has not been notified that it is under criminal investigation .

• The employer is not under an IRS employment tax examination for the tax period for which it is applying for the VDP .

• The employer has not received an IRS notice and demand for repayment of part or all of the ERC .

• The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action .

How to Apply Employers must submit Form 15434 , Application for Employee Retention Credit Voluntary Disclosure Program , using the IRS Document Upload Tool . They will be expected to repay their full ERC , less the 20 percent reduction allowed under the VDP . Employers unable to pay the full amount have the option to establish an Installment Agreement under certain conditions .

Employers Outsourcing Payroll Must Apply Through the Third Party Many employers outsource their payroll to a third party that reports , collects and pays the employer ’ s employment taxes , using the third party ’ s Employer Identification Number . In this situation , the third party , not the employer , must file Form 15434 .

Next Steps Once the employer submits its Form 15434 , an IRS employee will contact the employer to review the form and answer any questions .

If the IRS approves the employer ’ s application , the IRS will mail the employer a Closing Agreement . The employer must then repay 80 percent of the ERC it received , either online or by phone — using the Treasury Department ’ s Electronic Federal Tax Payment System .

Additional IRS Actions In July 2023 , the IRS said it was shifting its focus to review ERC claims for compliance concerns , including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims . The IRS has hundreds of criminal cases being worked , and thousands of ERC claims have been referred for audit .

Following concerns about aggressive ERC marketing from tax professionals and others , the IRS announced on Sept . 14 , 2023 , a moratorium on processing new ERC claims . Enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters .

IRS audit and Criminal Investigation efforts continue to expand involving dubious ERC claims . The IRS has more than 300 criminal cases being worked with claims worth almost $ 3 billion , and thousands of ERC claims have been referred for audit .

Stuart R . Josephs , CPA has a San Diego-based Tax Assistance Practice that specializes in assisting practitioners in resolving their clients ’ tax questions and problems . Josephs , a past chair of the CalCPA Committee on Taxation ’ s Federal Subcommittee , can be reached at ( 619 ) 469-6999 or stuartrjosephs @ yahoo . com . www . calcpa . org MARCH / APRIL 2024 CALIFORNIA CPA 9