Today, we want to direct your attention to a crucial matter that impacts the many businesses who took advantage of the Employee Retention Credit (ERC) to help weather the pandemic-induced economic downturn.

An Overview of the ERC

Before delving further, let's briefly review the ERC. Enacted as part of the CARES Act, this refundable tax credit aims to assist businesses by providing a credit against employment taxes. The credit covers qualified wages paid to eligible employees between March 12, 2020, and the third quarter of 2021. Special rules apply to businesses facing a full or partial suspension of operations due to a governmental order or experiencing a significant decline in gross receipts.

The IRS Voluntary Disclosure Program

Due to the complex nature of tax matters and/or misguided advice from third-party consultants, a significant number of businesses may have made errors in claiming eligibility for the ERC, and the Internal Revenue Service (IRS) is taking a closer look at erroneous claims. 

To address this issue, the IRS has introduced a Voluntary Disclosure Program, which offers a limited-time opportunity for businesses to voluntarily correct any questionable ERC claims. This program is available until March 22, 2024  and it allows eligible taxpayers to unwind questionable ERC claims without facing severe penalties.  Eligible businesses must submit Form 15434 by March 22, 2024, and meet criteria such as not being under criminal investigation, not having received notice of intent for a criminal investigation, and not being under an employment tax examination for the relevant period.

If your business falls into the category of those that potentially filed questionable ERC claims based on third-party advice or is undergoing a change of control, this program could provide a path to resolution. For businesses in the process of a sale or financing, the Voluntary Disclosure Program offers an opportunity to rectify ERC-related issues.

The IRS Audit Campaign

For those who choose not to take advantage of the Voluntary Disclosure Program, the IRS is continuing its aggressive audit campaign to investigate what it considers widespread ERC fraud. The IRS announced last September that it had uncovered over $8 billion in suspected fraud, leading to a moratorium on processing new claims through at least the end of 2023.

Why Filing Under the Voluntary Disclosure Program Makes Sense

From our perspective, participating in the program offers several benefits, including paying back only 80% of the claimed ERC amount, no repayment of interest, and avoiding interest and penalties on the ERC. Additionally, businesses are not required to reduce wage expenses or include the 20% they are not returning in their income. Participation in the Program does not protect a person who has willfully filed a fraudulent employment tax return claiming the ERC from criminal investigation and prosecution.

You may find more details about the Voluntary Disclosure Program on the IRS webpageWe encourage you to consult with your tax advisors to assess your eligibility and potential participation in the program.