IRS Announces Second Phase – ERC Amnesty Program

At a glance:

• The main takeaway: On December 21 2023 the IRS released a new program allowing businesses that incorrectly filed for and received an ERC refund to return 80% of the previously received amounts with no interest and penalties.
• Impact on your business: In the event you filed for ERC and now believe that your organization did not qualify, you can return 80% of the amount received without penalty and with no future audit risk.
• Next steps: The IRS has provided specific next steps to take dependent upon your specific fact pattern, but the window for application closes on March 22, 2024.

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The full story:

On December 21, 2023, the IRS announced a second Employee Retention Credit (ERC) amnesty program, providing businesses that previously applied for and received the ERC the opportunity to return the funds received without facing future penalties related to their filing. In addition, the program allows for the employer to retain 20% of the refunds, and to return the remaining 80% on an interest free/penalty free basis. This withdrawal process is designed to allow employers who have uncertain ERC eligibility positions — particularly if they utilized a “credit mill” or another unqualified provider — to come forward and return amounts received with limited cost to the organization.

In the release, the IRS provides an explanation for its decision to allow for the return of funds refunded as a result of prior ERC claims filed:

The new disclosure program, which has been in the works for several months, is part of a larger effort at the IRS to stop aggressive marketing around ERC that misled some employers into filing claims.

Which businesses are eligible to utilize the ERC second phase amnesty program?

Businesses must meet several specific factors to reach the eligibility threshold of the ERC amnesty program. All of the below must be met for eligibility:

1. The participant is not under criminal investigation, and they have not been notified that the IRS intends to commence a criminal investigation
2. The IRS has not received information from a third party alerting the IRS to the participant’s noncompliance, nor has the IRS acquired information directly related to the noncompliance from an enforcement action
3. The participant is not under an employment tax examination by the IRS for any tax period(s) for which the taxpayer is applying for this Voluntary Disclosure Program
4. The participant has not previously received notice and demand for repayment of all or part of the claimed ERC

Note that if the business willfully filed a fraudulent claim or conspired to do such, the amnesty program does not relieve the business of potential legal action.

Also, if the business was a client of a Professional Employer Organization (PEO) during the period of the refund request and the PEO filed the adjusted return to claim the benefit, the business must consult with the PEO on its ability to enter into the withdrawal program.

How does an employer request IRS amnesty consideration?

The process for withdrawal is initiated by the completion of IRS Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. Requirements and details for completion of the application include:

1. The taxpayer’s name, taxpayer identification number, current address and daytime telephone number. If a practitioner will represent the taxpayer, the practitioner must provide a completed Form 2848, Power of Attorney and Declaration of Representative.
2. Identification of the tax period(s) for which the ERC was claimed, the form on which the ERC was claimed and the full amount of the ERC claimed, including both the amounts that were refundable and non-refundable.
3. If the tax period(s) for which the ERC was claimed include any tax period ending in 2020, a completed, signed ERC Voluntary Disclosure Program Form SS-10, Consent to Extend the Time to Assess Employment Taxes, for the 2020 Tax Period(s), is required to be submitted with Form 15434.
4. If the ERC was claimed by a third-party payer on behalf of the participant, as described in Section 2, the third-party payer must attach a copy of the relevant pages of the Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, that was attached to each Form 941, Employer’s Quarterly Federal Tax Return, on which the third-party payer claimed the ERC for the participant.
5. If a return preparer or advisor assisted with the claim for credit or refund, include the name, address and phone number of the preparer(s) and advisor(s) who assisted with the claim for credit or refund and a description of services provided by the preparer or advisor.
6. The Form 15434 completion will provide details as to the calculation of the amount to be returned and the method of return, potentially including a payment plan, and:
7. The taxpayer will be required to enter into a closing agreement with the IRS asserting to all facts and circumstances regarding the settlement.

The bottom line

Since the beginning of the ERC program, legislators and the IRS have not provided clear guidance on the rules surrounding the eligibility process, which may have opened the door to abuse in the system. The IRS has regularly acknowledged the challenge with respect to these abuses, as well as confusion that may have been caused due to the lack of clarity on certain eligibility criteria.

The IRS previously announced a withdrawal program (https://www.aprio.com/tax-alert-the-irs-releases-an-erc-claim-withdrawal-process/) that was designed to allow businesses with uncertainty about their ERC position that did not receive their refund or cashed their check to return funds that they may not have been eligible to receive without the risk of penalties or interest being applied to returned amounts.

This extension of the program to taxpayers who have received ERC refunds appears to be the next step in the IRS attempting to reduce their claim backlog and to address concerns with potentially ineligible claims filed.  

How Aprio can help

Aprio was at the forefront of helping clients navigate pandemic-era programs like the ERC, and we stand ready to help business owners dealing with this new process released by the IRS. Since the inception of the ERC program, Aprio has prepared over 4,400 refund claims for employers. Our standards track to the eligibility requirements, and our approach has been conservative in approving business owners for the credit. That means we do turn down many potential ERC clients because we do not believe they have a path to eligibility.

With that being said, we know that many innocent business owners will be caught in the ERC audit web — which is why we have developed a strong team to assist businesses in this withdrawal process by preparing the proper documents, providing instructions for submission, and tracking acceptance of the withdrawals within the IRS.

If you need a trusted CPA and accounting team to help you file for the ERC, withdraw active claims or manage ERC audits, schedule a consultation with Aprio today.

Related Resources:

• Up to $265k Per Employee! What’s the Catch with the ERC?
• Substantial Employee Retention Tax Credits Remain at Large
• Will Your ERC Hold Up to an Audit?