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Employee Retention Credit (ERC) – Voluntary Disclosure Program (VDP)

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The ever-evolving world of ERC has a new and much anticipated major development – a voluntary disclosure program for those that have already received refunds.

We will touch on the major points of the program, but the most important takeaway is to act fast. The program ends March 22, 2024, and likely will not be extended.

Unlike the previously announced withdrawal program, the VDP is only for taxpayers that have received their refunds. If you have received your refunds, you can use the VDP if you meet the following requirements:

  • You believe you’re entitled to $0 ERC in the quarter that you are filing under the VDP.
  • You’re not under employment tax examination (audit) or criminal investigation by the IRS.
  • The IRS has not previously communicated their disallowance of your claim.

If you willfully claimed an ERC that is fraudulent, the VDP will NOT exempt you from criminal investigation and potential prosecution.

We’ve covered who can apply, the next question is why? The VDP is surprisingly generous and includes the following provisions:

  • Only required to pay 80% of the refund you received (WOW!).
  • Not required to pay back any interest you received on the ERC refund.
  • There will be no penalties or interest assessed on the potential improperly claimed ERC if you pay back the 80% amount.
  • The IRS will not examine/audit ERC on the employment tax returns for the periods that are repaid.

Many taxpayers that used third-party ERC providers have been inundated with cautionary tales from the IRS. The thought of having to pay back 100% of the ERC refund and to still be out 15-25% in fees paid to the provider is a difficult decision to make. By eliminating that excess burden on the taxpayer (80% repayment of the ERC refund), it will now be an easier decision to consider.

If you choose to utilize the ERC VDA, there are several forms that need completed and submitted, which are included on the link at the beginning of this article and explained below:

  • Prepare Form 15434 – Application for Employee Retention Credit Voluntary Disclosure Program
  • If tax period 2020 is involved, you will also need to prepare ERC-VDP Form SS-10
  • Have signed by an authorized individual at the Company
  • Follow the instructions under “ERC-VDP Process”, question 3 on the IRS page.

The next step is to wait for approval from the IRS. If the IRS approves your submission, they will provide a closing agreement which will acknowledge their acceptance of the repayment. The balance will be due prior to submission of the closing letter. Once both are complete, the VDP is complete and the taxpayer no longer has any outstanding ERC claims for the given period.

While this is a lot of information, it is imperative that any taxpayers who have received refunds and are still unsure of their eligibility take this program into consideration. As noted above, it is a taxpayer-friendly solution, and unlikely that it will continue beyond March 22, 2024.

For more information about ERC – Voluntary Disclosure Program, reach out to us today.

John Nicklas is a Vice President of the Assurance Service Group. He has 20+ years of experience serving accounting and business advisory needs.

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