Global Daily Tax News, US Launches Employee Retention Credit Abuse Amnesty, (Dec 28, 2023)

On December 21, 2023, the US Internal Revenue Service launched a new Voluntary Disclosure Program for businesses to pay back the money they received after filing Employee Retention Credit (ECRC) claims in error.

The new disclosure program is part of a larger effort at the IRS to stop aggressive marketing around ERC that misled some employers into filing claims. The special disclosure program runs through March 22, 2024, requiring repayment of 80 percent of any claim received. If the IRS paid interest on the employer's ERC refund claim, the employer doesn't need to repay that interest.

The IRS has also called on employers with pending ERC claims to consider a separate withdrawal program that allows them to remove a pending ERC claim with no interest or penalty. The IRS has already received more than USD100m in withdrawals as the agency continues intensifying audits and criminal investigation work in this area.

Interested employers must apply to the ERC Voluntary Disclosure Program by March 22, 2024.

Employers who are unable to repay the required 80 percent of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, and all required supporting documentation.

The IRS will not charge program participants interest or penalties on any credits they repay. However, if the employer is unable to repay the required 80 percent of the credit at the time of signing their closing agreement, then the employer will be required to pay penalties and interest in connection with entering into an installment agreement.

The IRS selected an 80 percent repayment because many of the ERC promoters charged a percentage fee that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.

To qualify for the program, the employer must provide the IRS with the names, addresses and telephone numbers of any advisors or tax preparers who advised or assisted them with their claim and details about the services provided.

The IRS has also announced that it has started sending up to 20,000 letters with proposed tax adjustments that will recapture the erroneously claimed ERC. These mailings are currently just for tax year 2020, with work continuing for tax year 2021. Employers that receive these notices will be ineligible for the amnesty.

In addition, employers are also excluded if they are the subject of a criminal investigation or an IRS employment tax examination for that relevant period. The IRS will also reject an application where it has information, provided from a third party or as a reuslt of an enforcement action, that the taxpayer is not compliant.

To apply, the employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. This form must be submitted using the IRS Document Upload Tool. Employers who outsource their payroll must apply through the third party.