IRS Announces Voluntary Disclosure Program for Employee Retention Credit (ERC)

By: Matthew E. Foreman, Esq., LL.M. and Samuel J. Brady, Esq.

On December 21, 2023, the IRS announced a new Voluntary Disclosure Program (the “Program”), allowing employers (both businesses and not-for-profits) who received the Employee Retention Credit (“ERC”) to repay 80% of the claimed ERC without penalty and interest provided they meet certain requirements.

Eligibility

An employer is eligible for the ERC voluntary disclosure program if:

• Application to the Program is made on or before March 22, 2024;
• The employer is not under criminal investigation and has not been notified that they are under criminal investigation;
• The employer is not under an IRS employment tax examination for the tax period for which they're applying to the Voluntary Disclosure Program;
• The employer has not received an IRS notice and demand for repayment of part or all of the ERC; and
• The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action.

How to Apply

To apply for the Program, employers must file IRS Form 15434, Application for Employee Retention Credit (ERC) Voluntary Disclosure Program, which requires the employer to list the amount of the credit by period and identify any advisors who advised on or assisted with, the preparation or filing of the ERC claim.

Further, the employer must repay 80% of the claimed ERC but is not required to amend their tax returns (e.g., IRS Forms 1120, 1120S, or 1065, or schedule C of Form 1040) to increase the amount of employee wages, which will significantly simplify compliance and help resolve many issues with the ERC without requiring multiple returns to be amended. After receiving the application, the employer will execute a closing agreement. The closing agreement will not preclude IRS investigation for criminal liability or provide immunity from prosecution; however, for most employers, it is extremely unlikely that the IRS will commence further action relating to the ERC. Due to the lack of a shield from criminal liability, it is strongly recommended that employers speak with an attorney regarding the specifics of their situation.

How Our Law Firm Can Assist

At Falcon Rappaport & Berkman, our team assists clients on matters including:

• Negotiating with the IRS upon audit of an ERC claim, including a defense of the claim itself and arguing against the application of penalties;
• Reviewing ERC claims not yet audited and advising about actions to take in advance of a potential audit;
• Analyzing agreements with unscrupulous third-party vendors promoting false ERC claims ("ERC Mills") and advising about pursuing remedies against them;
• Double-checking the assessments from ERC Mills about the eligibility of a potential claim;
• Evaluating whether your business has alternative avenues for tax savings and other advantages, such as qualified plans or other tax incentives;
• Advising other service professionals, such as accountants, regarding their ethical responsibilities, legal liabilities, and defense preparations in connection with ERC claims; and
• Enter into formal IRS programs, such as the new Voluntary Disclosure Program, to withdraw ERC claims to mitigate or eliminate liability.

If you need assistance on matters related to ERC scams or audits, please don’t hesitate to reach out to our Taxation Practice Group by phone at (516) 599-0888 or email erc@frblaw.com.

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.