The IRS announced a limited time reopening of the Voluntary Disclosure Program to help businesses fix incorrect Employee Retention Credit claims.
The Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP) will run through November 22 and allow businesses a chance to correct improper payments at a 15% discount and avoid future audits, penalties and interest. To underscore the importance of participating in the Voluntary Disclosure Program, the IRS also announced it plans to mail up to 30,000 new letters to reverse or recapture potentially more than $1 billion in improper ERC claims. Thousands more mailings on additional questionable payments will be made in the fall.
Details about the second ERC Voluntary Disclosure Program
Interested employers must apply to the second ERC Voluntary Disclosure Program by Nov. 22, 2024. Applicants that the IRS accepts into the program will need to repay only 85% of the credits they received. This second round of the program is open for tax periods in 2021. Employers can’t use the second VDP to disclose and repay ERC money from tax periods in 2020.
If the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay that interest. Employers who are unable to repay the required 85% of the credit 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. Form 433-B is available on IRS.gov.
The IRS will not charge program participants interest or penalties on any credits they timely repay. However, if an employer can’t repay the required 85% of the credit at the time they sign their closing agreement, they’ll be required to pay penalties and interest in connection with an alternative payment arrangement such as an installment agreement.
To qualify for this program, employers must provide the IRS with the names, addresses, telephone numbers and details about the services provided by any advisors or tax preparers who advised or assisted them with their claims.
The IRS has provided a set of Frequently Asked Questions about the second ERC Voluntary Disclosure Program to help employers understand the terms of the program.
ERC Voluntary Disclosure Program: Who can apply?
A variety of ERC recipients can apply for the second ERC Voluntary Disclosure Program. Any employer who already received the ERC for a tax period in 2021 for which they weren’t entitled can apply if the following are also true:
- The employer hasn’t already applied to the first ERC VDP for the same tax periods. The IRS is still processing VDP applications from the first program. Taxpayers should not reapply for the same periods.
- The employer isn’t under criminal investigation.
- The employer isn’t under an IRS employment tax examination for the tax period for which they’re applying to the VDP.
- The employer hasn’t received a Letter 6577-C, Employee Retention Credit (ERC) Recapture, or an IRS notice and demand for repayment of part or all of its ERC claim.
- The employer hasn’t already filed an amended return to eliminate their ERC.
- The IRS hasn’t received information from a third party or directly from an enforcement action that the taxpayer is not in compliance.
How to apply
To apply, employers must file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program , and submit it through the IRS Document Upload Tool. Employers are expected to repay their full ERC, minus the 15% reduction allowed through the VDP. Under certain conditions, employers who can’t pay the amount in full will have the option to set up an installment agreement.
If the employer outsources their payroll obligations to a third party who reports, collects and pays employment taxes on the employer’s behalf, the third party, not the employer, must file Form 15434.
Next steps after an application is approved
Once the employer has applied to the VDP and submitted their Form 15434, an IRS employee will contact them to go over the application and answer any questions.
If the IRS approves the employer’s application, they will mail the employer a closing agreement. The employer must then repay 85% of the ERC they received, either online or by phone, using the Electronic Federal Tax Payment System (EFTPS).
VDP participants unable to repay 85% of the ERC they received in full may enter into an installment agreement with the IRS to pay over time. Penalties and interest will apply under the standard installment agreement policy, so the IRS encourages those who can’t pay in full to consider getting a loan from a financial institution to avoid these costs. Once payment has been made, the employer must return the signed closing agreement to the IRS.