The IRS has reopened its Voluntary Disclosure Program (VDP) for a limited time, giving businesses that made improper Employee Retention Credit (ERC) claims a crucial opportunity to come forward and correct their mistakes. This program, which runs through November 22, 2024, offers a path for businesses to resolve erroneous claims and avoid potentially severe consequences such as audits, penalties, and interest.
If your business has claimed the ERC and you’re unsure about the accuracy of your claim, now is the time to act. The IRS is intensifying its compliance efforts, including plans to send up to 30,000 letters to businesses with questionable claims, targeting more than $1 billion in improper credits. This proactive approach can help you avoid getting caught up in future enforcement actions.
Key Benefits of the Voluntary Disclosure Program
- 15% Discount on Repayment: Businesses participating in the reopened VDP will be eligible for a 15% reduction in the amount they must repay. This discount applies to tax periods from 2021 and is a slightly reduced rate compared to the 20% offered during the first disclosure program that ended in March.
- Avoid Audits and Penalties: By voluntarily correcting your ERC claim through the program, you can sidestep more costly compliance actions that the IRS will take against businesses with improper claims. The IRS has already sent 28,000 disallowance letters and initiated thousands of audits on businesses with questionable ERC claims.
What You Need to Do
- Review Your ERC Claims: If your business claimed the ERC, review the eligibility criteria carefully. Many businesses were misled by aggressive marketing tactics, and claims may have been made incorrectly, even if you acted in good faith.
- Consult a Tax Professional: It’s essential to consult with a trusted tax professional to determine whether your claim needs to be corrected. This is especially important given the complexity of the ERC and the risk of future IRS compliance actions.
- Apply for the Voluntary Disclosure Program: If your claim needs adjustment, apply for the VDP before the November 22, 2024 deadline to take advantage of the 15% repayment discount and avoid penalties. Full details are available in IRS Announcement 2024-30.
Upcoming IRS Compliance Actions: 30,000 Letters and More
The IRS is stepping up efforts to reclaim improper ERC payments. The agency is preparing to mail up to 30,000 letters to businesses with problematic claims, focusing on Tax Year 2021 and some late-filed claims from 2020. These letters will notify businesses that the IRS is reversing or recapturing credits they received. If you receive one of these letters, you will not be eligible for the Voluntary Disclosure Program for the specific quarter covered by the letter, so it’s essential to act now before receiving a notice.
What Happens If You Don’t Act?
Failure to address improper ERC claims could lead to significant financial and legal consequences, including:
- Full Repayment: The IRS will demand repayment of any improperly claimed ERC, often with added penalties and interest.
- Audits and Investigations: Thousands of businesses are already under audit, and the IRS has opened 460 criminal investigations related to fraudulent ERC claims.
- Loss of Future Compliance Opportunities: Waiting for the IRS to catch your mistake could result in losing the opportunity for a discounted repayment and facing much steeper penalties.
Separate ERC Claim Withdrawal Program
If your ERC claim is still pending and has not yet been processed, you may qualify for the ERC Claim Withdrawal Program. This allows businesses to withdraw their claim without incurring any penalties or interest. More than 7,300 entities have already taken advantage of this program, withdrawing over $677 million in claims.
Act Now to Protect Your Business
The reopening of the Voluntary Disclosure Program offers a limited-time opportunity to correct improper ERC claims on favorable terms. Whether you need to amend a filed claim or withdraw a pending one, the time to act is now. Don’t wait for the IRS to reach out with a compliance letter or audit—take proactive steps to resolve any issues with your ERC claim.
If you’re unsure about your eligibility or need assistance navigating the disclosure process, contact us today. We can help you review your claim, explore your options, and ensure your business is compliant with IRS regulations before it’s too late.