Employee Retention Credit (ERC) Update – Voluntary Disclosure Program Reopened, IRS Special Withdrawal Program Restarts for a Limited Time, and Agency Continues Compliance Work

At a glance

• The main takeaway: The Voluntary Disclosure Program (VDP) has temporarily reopened for businesses who believe they received an erroneous ERC payment, providing an opportunity to return payments before being audited or penalized.
• Impact on your business: The VDP and the ERC Withdrawal Program are both valid options for businesses to return previously received refunds or withdraw existing claims if the business does not believe they were eligible.  
• Next steps: Businesses with unprocessed ERC claims or concerns about a previously processed ERC claim should consult a tax professional. Aprio is available to help.

The full story:

On August 15, 2024, the IRS announced additional updates to the Employee Retention Credit (ERC) program, including a limited reopening of the Voluntary Disclosure Program (VDP) and the continued commitment to identify and act upon claims they believe were improperly filed or for businesses that were ineligible to claim the credit.  

This news comes after the Senate failed to vote by August 1 on a bill that would have terminated the ERC program for all new claims and extended the statute of limitations for individual refund audits. Without a vote, this bill is provisionally dead, meaning taxpayers can still file refunds to claim the ERC for the 2021 tax year until the 2021 ERC filing expires on April 15, 2025. The 2020 ERC filing already expired on April 15, 2024. However, the moratorium on processing new claims remains in place for claims filed after January 31, 2024.

The reopening of the VDP, in combination with the IRS’s stated intention to “recapture potentially more than $1 billion in improper ERC claims,” signals a strong commitment to thoroughly evaluating all existing ERC claims for legitimacy.

Temporary reopening of the Voluntary Disclosure Program

The IRS previously introduced the VDP as an option for taxpayers to voluntarily return refunds received as a result of ERC claims filed if they believe their claim was not warranted. The VDP allowed for the return of 80% of the refund received, with the ability to retain the interest paid, and avoid any penalty and interest that otherwise might be due upon audit. This original VDP ended in March 2024, but the IRS has now reopened the program, effective immediately through November 22, 2024, due to the continued high volume of what they believe to be improper claims. 

The newly reopened VDP provides a 15% discount to businesses that choose to repay refunds received for tax periods in 2021, resulting in a repayment of 85% of the amount received. Interest and penalties are still not assessed in the newly opened VDP, similar to the first round. In the announcement, the IRS also urged taxpayers with processed ERC claims to review the warning sign indicators and consult a tax professional regarding any concerns about the claim’s legitimacy.

The ERC withdrawal process remains in effect

Taxpayers whose ERC claims have not yet been processed due to the IRS backlog or the long-running moratorium on processing new claims still have access to the IRS Withdrawal Program. This program allows taxpayers to remove their claims from the queue for IRS review with no questions asked or penalties applied. This withdrawal program is also available to taxpayers who have received but not cashed their refund check and taxpayers whose ERC claims are currently under audit.

Thorough reviews of all ERC claims will continue 

In the August 15^th news release, the IRS also provided additional details on the progress towards reviewing outstanding claims and identifying improper and fraudulent claims. The IRS noted they plan to mail up to 30,000 new “clawback” notices this fall to reverse more than $1 billion in previously processed credits and have already sent over 28,000 letters to businesses whose claims are at a high risk of being incorrect. 

Taxpayers who receive a clawback notice will be unable to participate in the VDP, further emphasizing the importance of businesses proactively assessing existing or prior claims against the warning indicators and discussing with a tax professional whether the VDP or withdrawal program are viable options.

As previously mentioned, the moratorium remains in place for ERC claims submitted after January 31, 2024. However, as announced on August 8, this is a change in the moratorium period, meaning the IRS will now begin processing claims filed between September 14, 2023, (the original moratorium date) and January 31, 2024. Any taxpayers who filed ERC claims during the previous moratorium date should ensure their claims are proper or consider whether the withdrawal program is the best option before those claims go through IRS review.

The bottom line

Once again, the IRS has reaffirmed its commitment to identifying improper or erroneous ERC claims while fastidiously working through the backlog to process legitimate claims. While the IRS has identified more than 50,000 valid ERC claims, which they plan to pay out in the coming weeks, the number of disallowances for potentially incorrect claims continues to rise.

The newly reopened VDP may be an option for any business that believes it may have received an erroneous ERC payment or was, in retrospect, ineligible for the refund; the program will provide protection from an audit or penalties as long as the claim was not filed fraudulently. Likewise, businesses that wish to remove their unprocessed claims still have access to the withdrawal process to prevent a potential future audit or penalties. In any scenario, it is advised that businesses discuss their claim with a tax professional before taking the next step toward the VDP or withdrawal.

Aprio is available to assist with these matters. Please contact us at ERC2024@Aprio.com.

Related Resources/Assets/Aprio.com articles/pages

• IRS News Release: IRS reopens Voluntary Disclosure Program to help businesses with problematic ERC claims
• ERC Voluntary Disclosure Program
• ERC Update: Payouts for Low-Risk Claims are Coming but the Moratorium is Here to Stay