If you have received refunds through the Employee Retention Credit (ERC) and are concerned about its legitimacy, a recent development from the IRS could be good news for you. Earlier in 2023, we wrote about how many of the companies offering to help with ERC credits were scams, and how the fraud was so rampant the IRS stopped processing the claims. In response, the IRS initiated the ERC Voluntary Disclosure Program, a strategic solution for employers to address and rectify potential missteps in their ERC claims. This program is particularly relevant for businesses that may have received incorrect guidance about their eligibility from ERC promoters.
Key aspects of this new initiative include:
- Program Eligibility and Deadline: Businesses that claimed the ERC and obtained refunds are eligible to participate in this program, but it is crucial to act before the deadline of March 22, 2024. This is especially pertinent for those who collaborated with contingency-based firms that might have advised inaccurate filing.
- Program Participation Requirements:
- Filing Procedure: Employers must file Form 15434 to calculate the appropriate amount to be returned.
- Repayment Obligation: Participants must voluntarily return 80% of the received refund upon application submission. Notably, you must disclosure information on the firm that assisted with the ERC refund claim, so it can scrutinize aggressive credit-only firms.
- Payment Arrangements: In certain instances, the IRS may consider a payment plan for the 80% repayment.
- Cooperation and Agreement: Participants are expected to cooperate fully with the IRS, providing information promptly, and must sign a closing agreement.
- Benefits of Voluntary Disclosure:
- Reduced Repayment: Employers are required to pay back only 80% of the refund amount.
- No Penalties or Interest: There will be no additional penalties or interest charges.
- Interest Retention: Employers can retain any interest paid by the IRS with the refund.
- Audit Exemption: Those that participate will be exempt from future audits.
- Consequences for Non-Compliance:
- Audit Penalties: Employers audited and found to have erred in ERC refunds will owe the full refund amount, preparer fees, and interest.
- Severe Penalties: Civil and criminal penalties could range from 75-100% of the refund, based on the severity of violations.
- Personal Liability: Corporate officers or those in fiduciary positions are personally liable for erroneous ERC claims.
We advise reviewing your ERC claim status and consider participating in this program if you think your ERC claim may have been fraudulent. Our team is ready to assist you in navigating these new regulations and ensuring compliance. Please don’t hesitate to reach out for guidance or clarification.