Earlier this year, the IRS launched a Voluntary Disclosure Program (VDP) under which taxpayers could return Employee Retention Credits (ERCs) received based on inaccurate or ineligible filings. The initial phase of the VDP was time-limited, with applications open through March 22, 2024. Despite this short duration, the VDP saw significant utilization resulting in large recoveries for the IRS and audit avoidance for certain taxpayers.
In light of its successes, the IRS announced that it is reopening the VDP as of August 15, 2024. This second phase will run until November 22, 2024. To participate in the program, the IRS requires that an eligible taxpayer: (1) apply to the VDP using a template form; (2) cooperate with the IRS, including providing additional information; (3) pay back 85 percent of the ERC received; and (4) sign a closing agreement. Certain additional eligibility criteria apply, and are summarized here.
Note that the original VDP required taxpayers to return all but 20 percent of the ERC (here, the offset is slightly less generous). Also, the new VDP window applies only with respect to tax year 2021, and 2020 tax periods are ineligible for relief.
The reopening of the VDP comes on the heels of the IRS announcing plans to mail up to 30,000 letters to taxpayers to reverse or recapture potentially over $1 billion in improper ERC claims.
Employers in receipt of ERCs may wish to consult with tax and benefits counsel to evaluate participation in the VDP. For more information about the latest round of the VDP, including eligibility information, employers may consult IRS Announcement 2024-30. Additional details about the ERC and the earlier VDP window can be found here, here, here, and here.
In addition to the VDP, a separate program allows certain employers who filed an ERC claim who have not yet received or who have received but have not yet deposited or cashed their refunds to withdraw their submissions and avoid future repayment, interest, and penalties. More information about the ability to withdraw can be found here.
