IRS Reopens Voluntary Disclosure Program for Businesses With Troubled Employee Retention Debt Claims

The Internal Revenue Service (IRS) has announced the reopening of the Voluntary Disclosure Program (VDP) for businesses seeking to correct improper Employee Retention Credit (ERC) claims. This move is part of the IRS’ ongoing compliance efforts and gives businesses the opportunity to correct errors on their ERC claims while avoiding future audits, penalties, and interest. The program will begin on November 22, 2024, and offers a 15% discount on fees, which is slightly less than the 20% discount offered in the first VDP that ended in March.

The IRS is also stepping up its compliance actions by sending up to 30,000 letters aimed at recapturing $1 billion in improper ERC claims. These letters will guide claims made for the 2021 Tax Year and other later filed claims from the 2020 Tax Year. Entities that receive these recapture letters will not be eligible to participate in the Voluntary Disclosure Program for the relevant calendar quarter.

Key Points:

• Reopened Voluntary Disclosure Program: The VDP is available until November 22, 2024, allowing businesses to settle unfair ERC claims with a 15% discount on fees. This provides a way to avoid future compliance actions by the IRS.
• Additional Compliance Efforts: The IRS plans to send up to 30,000 letters to businesses with improper ERC claims, representing more than $1 billion. These recapture letters will notify taxpayers that the IRS is reversing or reclaiming their past credits.
• Impact of Unfair Claims: The IRS has already identified significant amounts of improper claims from the 2020 and 2021 Tax Years. These new books are expected to face huge claims due to the increased volume of ERC in 2021.
• Separate Claim Withdrawal Plan: The IRS continues to encourage businesses with pending, unprocessed ERC claims to consider the ERC Claim Withdrawal Program. The program allows employers to withdraw their claims without incurring penalties or interest, and has resulted in the withdrawal of $677 million in claims from more than 7,300 companies.

Importance of participation:

The IRS urges businesses that believe they may have received erroneous ERC payments to take advantage of the Voluntary Disclosure Program to resolve the issue on more favorable terms and avoid more severe consequences, such as audits and full payments with penalties and interest. This program represents an important opportunity for businesses to correct course and comply with federal tax laws.