Details of New ERC Voluntary Disclosure Program

December 21, 2023 by Max Shenker

The IRS unveiled details of a new voluntary disclosure program on December 21. This settlement program, first previewed in the September 14 processing moratorium announcement, is targeted at taxpayers who have received ERC funds that they now believe they were not eligible for. IRS Commissioner Danny Werfel said, “The disclosure program provides a much-needed option for employers who were pulled into these claims and now realize they shouldn’t have applied.”

According to the IRS news release, “As these special initiatives for ERC continue, the IRS will provide an update in the new year on the status of the moratorium.” The information published today also clarifies that the withdrawal option remains available to taxpayers who have not received any refunds and would like to reverse their claims. The IRS has so far received more than $100 million in withdrawals.

The following are the key highlights of the detailed disclosure program:

  • Taxpayers approved to participate in the program will only need to return 80% of the ERC they received. There will be no requirement to repay any interest received with the credit. The retained amount will not be considered taxable income; therefore, no wage deduction amendment will be required.
  • The deadline to apply is March 22, 2024.
  • To apply, the ERC claim cannot currently be under audit or review, the taxpayer cannot currently be under criminal investigation, and the IRS cannot have already received information from a third party that the taxpayer is not in compliance.
  • Applications for participation will be made electronically using Form 15435.
  • Taxpayers unable to pay the full 80% upfront may be allowed to participate in an installment plan, but the IRS will add penalties and interest, which would be excluded for those who pay in full upfront.
  • Participation in the program does not preclude the IRS from pursuing criminal charges if the taxpayer willfully filed a fraudulent return.

In addition to the news release and tax form, the IRS also published Announcement 2024-3, a new set of FAQs, and a dedicated web page about the ERC-VDS.

The IRS also disclosed that they are mailing a second round of 20,000 letters, explaining, “As part of this expanding effort for employers that claimed an erroneous or excessive ERC, the IRS also announced today it has started sending up to 20,000 letters with proposed tax adjustments that will recapture the erroneously claimed ERC. These mailings – which are on top of the 20,000 denial letters announced earlier in December – are currently just for tax year 2020, and work continues for tax year 2021, with additional mailings planned. If the IRS identifies an employer that has received excessive or erroneous ERC, the agency will reclaim that ERC through normal tax assessment and collection procedures.”

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