The Internal Revenue Service (IRS) has issued an urgent reminder to businesses to address improper Employee Retention Credit (ERC) claims through the agency's Voluntary Disclosure Program.
With the deadline looming today, November 22, for the second Voluntary Disclosure Program, the IRS urgently recommends that businesses review ERC guidelines and take action to resolve incorrect claims soon to avoid future issues, including potential legal consequences such as penalties.
The IRS Voluntary Disclosure Program provides businesses with an opportunity to rectify mistakes or inaccuracies in ERC claims without facing the full brunt of enforcement measures.
It is a way for taxpayers with previously undisclosed income to contact the IRS and resolve their tax matters, with the IRS describing it as "a truthful, timely and complete disclosure of your willful noncompliance through designated procedures."
It has been a key initiative in addressing widespread misuse of the ERC, a pandemic-era relief measure issued during COVID-19 disruptions.
In an IRS announcement, it said that high-pressure marketing misled many ineligible businesses into filing claims for this tax credit, so the company has opened special programs to help businesses voluntarily resolve incorrect claims.
"Tax professionals and IRS staff are hearing repeatedly that many businesses very much believe they qualify for the credit when, in fact, they don't," said IRS commissioner Danny Werfel. "We urge businesses with pending claims to reexamine their claims to see if they were misled and use the options to proactively resolve their issues. They should listen to trusted tax professionals, not promoters."
During the first Voluntary Disclosure Program, the IRS reported more than 2,600 applications disclosed $1.9 billion worth of credits.
The second ERC Voluntary Disclosure Program allows businesses that received the credit after filing a claim in error to apply for this program to repay the credit minus 15% for tax periods in 2021, the IRS said.
They added that the Claim Withdrawal Program remains open for businesses that need to ask the IRS not to process an ERC claim for any tax period that hasn't been paid yet. The IRS will treat the claim as though the taxpayer never filed it. No interest or penalties will apply.
Taxpayers who can't pay the full amount of ERC minus 15% by the time they return their signed closing agreement can still apply to the ERC Voluntary Disclosure Program and request an Installment Agreement to pay over time, the IRS said. Businesses who need an installment plan should request it by November 22.
"Under an Installment Agreement, the business must make monthly payments. Interest and penalties that normally apply to a tax liability will apply starting from the ERC Voluntary Disclosure Program closing agreement date.
"This date, however, is better for businesses than an agreement outside of the ERC Voluntary Disclosure Program where the penalties and interest date back to when the business received the incorrect ERC," the IRS said.
In a related move, the IRS has extended the deadline for the consolidated claim process for third-party payers to submit disclosures.
Initially set to expire soon after the November 22 cutoff, this deadline has been pushed back to December 31, 2024. This extension is aimed at accommodating the complexities third-party payers face in resolving improper ERC claims on behalf of their clients.
If a third-party payer's client has since determined it is ineligible for the ERC and wants to resolve their claim, it is the third-party payer that needs to correct it.
"Thousands of businesses came forward during the first disclosure program," Werfel said. "Thousands more have withdrawn incorrect claims. Businesses that enter these programs can avoid penalties and interest they'd face if the IRS takes compliance actions later. The IRS reminds businesses involved with incorrect claims that the risk can sharply escalate over time."
The agency advised that some promoters called the credit a grant, a business stimulus payment, government relief or other names.
The IRS emphasizes the importance of proactive correction and warns that if the agency finds an incorrect ERC claim after these programs end, the agency can disallow unpaid claims or require repayment with penalties and interest.
For more information on the Voluntary Disclosure Program and the ERC, businesses can visit the IRS website or consult a tax professional.
English (US) ·