IRS Announces Important Changes to the ERC Voluntary Disclosure Program

On August 15, 2024, the Internal Revenue Service (IRS) announced that it is reopening the Employee Retention Credit (ERC) Voluntary Disclosure Program for a limited time. The ERC Voluntary Disclosure Program previously closed in March 2024, with the IRS reportedly receiving more than 2,600 voluntary disclosures involving more than $1.09 billion in improper ERC credits and refunds. As Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, for business owners who are thinking about submitting a voluntary disclosure this time around, there are some important changes to keep in mind.

Important Changes to the ERC Voluntary Disclosure Program

When the IRS announced that it was reopening the ERC Voluntary Disclosure Program on August 15, it also announced some important changes to the program. These changes include:

• Reduced Repayment Discount – During the initial round of the ERC Voluntary Disclosure Program, participating businesses could retain 20 percent of the credits or refunds they improperly obtained. However, this time only 15 percent may be retained. As the IRS explains, “[e]mployers who are unable to repay the required 85 [percent] of the credit may be considered for an Installment Agreement on a case-by-case basis.”
• Additional Eligibility Criteria – The IRS has also added new eligibility criteria for the ERC Voluntary Disclosure Program this time around. For example, a business is not eligible to apply for the ERC Voluntary Disclosure Program for any periods that it submitted an application previously, and businesses cannot use the program to address ERC claims for 2020 tax periods. A business is also ineligible to participate if the IRS has “received information from a third party or directly from an enforcement action that the taxpayer is not in compliance.”
• New Filing Deadline – Under the reopened ERC Voluntary Disclosure Program, eligible businesses have until November 22, 2024 to submit an application to the IRS. However, as the IRS advises, “[b]usinesses should act soon to resolve incorrect claims and avoid potential future issues such as audits, full repayment, penalties and interest.”

However, one key aspect of the ERC Voluntary Disclosure Program remains the same: Submitting a voluntary disclosure application does not guarantee protection from criminal culpability. As the IRS makes clear, “if you willfully claimed an ERC that is fraudulent, or if you assisted or conspired in such conduct, applying to the second ERC-VDP will not exempt you from potential criminal investigation and prosecution.”

With this in mind, it is critical that business owners make informed decisions about whether to attempt to take advantage of the reopened ERC Voluntary Disclosure Program. If criminal prosecution is a concern, there are other options available, and it will be essential to pursue one of these alternatives instead of submitting a voluntary disclosure that prosecutors may be able to use to pursue charges for ERC fraud.

Request a Confidential Consultation with Boston Tax attorney Kevin E. Thorn

If you are thinking about filing an application under the reopened ERC Voluntary Disclosure Program, we strongly encourage you to contact us for more information. To request a confidential consultation with Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989 or contact us confidentially online today.