The IRS has introduced the Employee Retention Credit (ERC) Voluntary Disclosure Program through Announcement 2024-3. The purpose is to allow employers to resolve erroneous claims for the ERC, a refundable tax credit designed for businesses and tax-exempt organizations that continued paying employees during the COVID-19 pandemic. The IRS is concerned about potential scams and fraud related to ERC claims and offers this program to help employers rectify errors and avoid enforcement actions, penalties, and interest.

The program allows participants to settle their ERC-related employment tax obligations by forfeiting their eligibility for the ERC while retaining 20% of the claimed ERC amount.

Eligibility criteria include:

  • Not being under criminal investigation
  • IRS has not received information from a third party alerting the IRS to the participant’s noncompliance, nor has the IRS acquired information directly related to the noncompliance from an enforcement action
  • No prior notice for repayment
  • Not being under an IRS employment tax examination for the relevant period

Terms of the ERC Voluntary Disclosure Program involve the participant remitting 80% of the claimed ERC to the Department of the Treasury and resolving income tax effects related to wage expense adjustments. Participants who are unable to remit full payment of the 80% of the claimed ERC may be considered for an installment agreement, pending approval. Participants must provide information about preparers or advisors who assisted with the ERC claim. The IRS will not assert civil penalties for underpayment of employment tax if the participant remits the full payment before executing a closing agreement.

Procedures for participation include submitting Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, by March 22, 2024. The form requires details about the ERC claim, including tax periods, amounts claimed, and information about third-party payers, if applicable. Payments should be made using the Electronic Federal Tax Payment System (EFTPS), and the IRS will prepare a closing agreement under Section 7121 of the Internal Revenue Code.  Denial of participation is not subject to review or appeal, and the program does not grant immunity from prosecution for associated criminal conduct.

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