Investigation into the Employee Retention Credit (ERC) remains a focus of the Internal Revenue Service (IRS). The agency recently reopened the disclosure program for businesses seeking to address improperly filed ERC applications and avoid a future IRS audit on the issue.
Because of the high number of businesses that applied for relief through the ERC program, we are keeping you on top of latest developments. The ERC program was originally designed to aid businesses struggling to retain workers throughout the pandemic. Non- and for-profit businesses were eligible for payroll relief.
The IRS has announced it is temporarily reopening the Voluntary Disclosure Program (VDP) until November 22, 2024. Throughout the past year, the IRS has been vocal about the number of ERC claims filed that were improper or downright fraudulent. In addition to ineligible business owners who filed for the credit—mistakenly or purposefully—the IRS has warned incessantly of pop-up marketing businesses that touted the ERC as basically free money. These businesses charged a fee to file the ERC application and left business owners on the line for the audit, penalties, and interest to follow.
For that reason, the IRS is again opening the disclosure program. The first VDP session ended in March and provided an opportunity for 2,600 business applicants to disclose $1.09 billion in credits they had received. With the VDP open again, business owners who believe they may have applied for the program in error have an opportunity to avoid further problems over the credit. The IRS is also mailing 30,000 new letters notifying recipients that their ERC payments are being reversed or recaptured. The IRS expects to recover approximately $1 billion in erroneous payments from this tranche of letters, with more expected in the fall.
Notes IRS Commissioner Danny Werfel, “The limited reopening of the Voluntary Disclosure Program provides an opportunity for those with improper claims to come in ahead of IRS compliance work and get a discount on repayments.”
Business owners with improper ERC payments can use the VDP to receive a 15 percent discount when repaying ERC monies previously received. While less than the original VDP discount of 20 percent, it remains an incentive and a means to avoid future compliance action which will involve an audit, additional penalties, and interest on the entire sum owed.
If you received an ERC payment for which you were ineligible, there is no better time than right now to straighten it out. For those who unscrupulously collected, the IRS is auditing thousands of businesses with 460 criminal cases already underway.
Speak with an experienced tax lawyer if you have questions about your ERC application and your next best steps.
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