IRS Reopens Voluntary Disclosure Program for Errant ERC Claims
IRS Reopens Voluntary Disclosure Program to Address Problematic Employee Retention Credit Claims
The Internal Revenue Service (IRS) has announced the reopening of its Voluntary Disclosure Program (VDP), offering businesses a crucial opportunity to rectify erroneous Employee Retention Credit (ERC) claims. This move is part of the IRS’s broader efforts to address widespread issues with ERC claims, which have amounted to over $1 billion in improper payments. The reopening of the VDP comes as the IRS intensifies its compliance measures, including sending up to 30,000 letters to businesses to reverse or recapture incorrect ERC claims.
Background on the Employee Retention Credit
The Employee Retention Credit (ERC) was introduced as part of the CARES Act in 2020 to help businesses keep employees on their payroll during the COVID-19 pandemic. However, the ERC also became a target for aggressive marketing tactics by promoters, leading to a flood of questionable claims.
Reopening of the Voluntary Disclosure Program
In response to the growing number of erroneous ERC claims, the IRS first introduced a Voluntary Disclosure Program earlier this year, which concluded in March 2024. Given the success of the first program and the ongoing issues with ERC claims, the IRS has decided to reopen the VDP, which will run until November 22, 2024.
The reopening of the VDP offers businesses a final chance to self-correct and repay any ERC claims made in error. To incentivize participation, the IRS is offering a 15% discount on repayments for businesses that come forward voluntarily.
Importance of Participating in the VDP
IRS Commissioner Danny Werfel emphasized the importance of participating in the VDP, especially in light of the increasing compliance actions being taken by the agency. He warned that businesses that do not participate in the VDP may face audits, penalties, and interest.
The IRS has already begun sending out letters to businesses whose ERC claims are deemed questionable. Businesses that receive these letters will be ineligible to participate in the VDP for the specific calendar quarter covered by the letter, making it all the more critical for businesses to act swiftly if they suspect their claims may be problematic.
Ongoing Compliance and Enforcement Efforts
In addition to reopening the VDP, the IRS is continuing its broader compliance efforts related to the ERC. These efforts include a significant number of audits, criminal investigations, and actions against tax promoters and preparers who have been found to be promoting improper ERC claims.
The reopening of the IRS’s Voluntary Disclosure Program offers businesses a critical opportunity to correct any erroneous ERC claims and avoid future penalties, interest, and audits. With the IRS sending out thousands of letters to reverse or recapture improper ERC claims, businesses should act quickly to assess their eligibility and consult with a trusted tax professional to determine whether the VDP is the right course of action. As the IRS continues to intensify its compliance and enforcement efforts, taking proactive steps now can help businesses mitigate the risks associated with improper ERC claims and ensure compliance with federal tax laws.
Adam manages a variety of tax and accounting engagements for business clients in numerous industries, including manufacturing, real estate, construction, alternative investments, and professional services. He has experience in federal tax, multi-state corporate income and franchise tax, and municipal income tax. In addition to his tax compliance background, Adam specializes in preparing and managing complex partnership engagements.
