### Understanding the IRS’s Second Voluntary Disclosure Program for the Employee Retention Credit
The Internal Revenue Service (IRS) has introduced a second round of the Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP), providing businesses with a crucial opportunity to correct improper claims without incurring penalties or interest. This program, which runs through November 22, 2024, is especially important for businesses that may have inadvertently received ERC payments they weren’t entitled to.
### Why the Second ERC Voluntary Disclosure Program Matters
The reopening of the ERC VDP comes in response to a significant number of improper claims, many of which were driven by aggressive marketing from unscrupulous promoters. As the IRS intensifies its compliance efforts, businesses with questionable claims are strongly encouraged to use this program to self-correct and repay any improperly received credits.
By participating in this program, businesses can resolve these issues at a 15% discount, avoiding future audits, penalties, and interest. This represents a valuable opportunity for companies to safeguard themselves from potentially costly compliance actions down the road.
### Key Details of the Second ERC Voluntary Disclosure Program
Businesses interested in applying to the second ERC VDP must do so by November 22, 2024. This program is specifically open for tax periods in 2021 and is not available for claims related to tax periods in 2020.
Here are the essential details:
– **Discounted Repayment**: Participants are required to repay 85% of the ERC they received. This 15% discount is a significant incentive to come forward and correct any errors.
– **No Repayment of Interest**: If the IRS paid interest on an employer’s ERC refund claim, the employer does not need to repay that interest.
– **Installment Agreements**: Employers unable to repay the required 85% at once may apply for an installment agreement. However, penalties and interest will apply under this arrangement, so businesses are encouraged to seek other financing options to avoid these additional costs.
– **Disclosure Requirements**: To qualify, employers must provide detailed information about the advisors or tax preparers who assisted them with their claims. This transparency is critical for maintaining the program’s integrity.
### Who Should Consider the Program?
The second ERC VDP is open to a variety of ERC recipients, but there are specific eligibility criteria:
– Employers must not have applied to the first ERC VDP for the same tax periods.
– They must not be under criminal investigation or an IRS employment tax examination for the period in question.
– They must not have received an IRS notice demanding repayment of part or all of their ERC claim.
– Employers who have already filed an amended return to eliminate their ERC are also ineligible.
### How to Apply
To apply, employers must submit Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, via the IRS Document Upload Tool. Businesses that outsource their payroll to a third party must have the third party file the application on their behalf.
Once the application is submitted, an IRS employee will contact the employer to discuss the application and next steps. If approved, the employer must repay 85% of the ERC they received through the Electronic Federal Tax Payment System (EFTPS) and return the signed closing agreement to the IRS.
### Next Steps for Employers
For businesses that suspect they may have received ERC payments in error, this second round of the VDP is an invaluable opportunity to correct these mistakes while minimizing financial and legal risks. The IRS’s ERC Eligibility Checklist is a helpful resource for reviewing eligibility requirements, and consulting with a trusted tax professional is highly recommended.
With the deadline fast approaching, businesses should act quickly to take advantage of this program. The IRS’s second ERC Voluntary Disclosure Program offers a path to resolution that is both financially prudent and legally sound. Don’t miss the opportunity to protect your business from future audits, penalties, and interest—consider applying to the program before November 22, 2024.