New IRS Voluntary Disclosure Program lets employers who received questionable Employee Retention Credits pay them back

This week, the IRS announced a new ERC voluntary disclosure program (ERCVDP) that has many distinctive features:

• The ERCVDP squarely aims to investigate dubious and aggressive ERC promoters further. Applicants must provide the “names, addresses and telephone numbers of any [ERC] advisors or tax preparers who advised or assisted them with their [original ERC] claim and details about the services provided.” This suggests that the IRS will electronically data mine disclosure applications to find and investigate predatory ERC promoters. The IRS has used this strategy many times before to identify and prosecute advisors in other contexts.
• ERCVDP submissions are submitted through an online document upload, which is entirely different from past IRS voluntary disclosure programs that required paper filing. This means that the IRS will more efficiently process disclosure submissions, which previously often required months or years of processing time. This also will allow the IRS to use data analytics electronically to review and analyze disclosure submissions for issues or enforcement opportunities.
• The voluntary disclosure program runs through March 22, 2024, which is right in the middle of the busy tax season. I would expect and hope that the program gets extended to accommodate advisors and their clients.
• Program participants will not be charged any interest or penalties if they fully pay the amount due. This is entirely different and unique to this program. All other IRS voluntary disclosure programs previously charged penalties even if paid in full.
• Program participants unable to pay in full are immediately granted installment payment consideration. While this was not common in past voluntary disclosure programs, payment plans make sense in this case because ERC funds were often quickly used for various immediate uses after the pandemic.
• Interestingly, participants become ineligible upon discovery of noncompliance from third parties (it is possible that promoters currently under investigation will voluntarily provide their clients lists to avoid or minimize prosecution). It has been reported that many promoters are being criminally investigated for aggressive and questionable ERC tactics.

Our firm has filed hundreds of IRS voluntary disclosure submissions over the years, and there are numerous similarities to other voluntary disclosure programs. As customary, program eligibility requires no current criminal or civil investigation or exam. Also, a closing agreement is provided at the conclusion of the program, which probably prohibits any appeals and requires participants to retain records, and allows for examination in the future. Most importantly, program participants will successfully avoid an examination or investigation into a questionable or excessive ERC claim.

Unlike other voluntary disclosure programs where the IRS had little advance or no information about questionable tax positions (i.e., unreported foreign accounts), the ERC is a domestic tax benefit involving electronically filed employment tax and income tax returns. The IRS is well equipped with ample information to identify questionable ERC claims. For many erroneous claimants, the days are numbered before discovery, investigation, and possible prosecution. All advisors and ERC claimants should properly review their situation and explore the new IRS program before it’s too late.

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