IRS Reopens Voluntary Disclosure Program for Businesses with Problematic Employee Retention Credit 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 initiative is part of the IRS’s ongoing compliance efforts and offers businesses a chance to rectify errors in their ERC claims while avoiding future audits, penalties, and interest. The program will run through November 22, 2024, and provides a 15% discount on repayments, slightly less than the 20% discount offered in the first VDP that concluded in March.

The IRS is also intensifying its compliance actions by sending up to 30,000 letters aimed at recapturing over $1 billion in improper ERC claims. These letters will target claims made for Tax Year 2021 and some later-filed claims from Tax Year 2020. Businesses that receive these recapture letters will be ineligible to participate in the Voluntary Disclosure Program for the relevant calendar quarter.

Key Points:

• Reopened Voluntary Disclosure Program: The VDP is available through November 22, 2024, allowing businesses to correct improper ERC claims with a 15% discount on repayments. This offers a way to avoid future compliance actions by the IRS.
• Increased Compliance Efforts: The IRS plans to send up to 30,000 letters this fall 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 previous credits.
• Impact of Improper Claims: The IRS has already identified significant amounts of improper claims from Tax Years 2020 and 2021. These new letters are expected to address larger claims due to the increased ERC maximum in 2021.
• Separate Claim Withdrawal Program: The IRS continues to encourage businesses with pending, unprocessed ERC claims to consider the ERC Claim Withdrawal Program. This program allows employers to withdraw their claims without incurring penalties or interest, and has already led to the withdrawal of $677 million in claims from over 7,300 entities.

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 repercussions, such as audits and full repayment with penalties and interest. This program represents a critical opportunity for businesses to correct course and comply with federal tax regulations.