The Internal Revenue Service (IRS) is urging businesses to act quickly to address improper Employee Retention Credit (ERC) claims ahead of two critical deadlines. The second Voluntary Disclosure Program ends Nov. 22, 2024, while the consolidated claim process for third-party payers has been extended to Dec. 31, 2024.
This is an important opportunity for businesses and third-party payers to resolve inaccurate ERC claims and avoid steep penalties or compliance actions in the future.
Why Businesses Should Take Action
The ERC, a pandemic-era tax credit, was designed to help businesses retain employees during challenging times. Unfortunately, aggressive marketing campaigns by unscrupulous promoters have led many businesses to file incorrect claims, often under false pretenses.
IRS Commissioner Danny Werfel warns:
“Tax professionals and IRS staff are hearing repeatedly that many businesses very much believe they qualify for the credit when, in fact, they don’t. Businesses should listen to trusted tax professionals, not promoters.”
For businesses that may have been misled, the Voluntary Disclosure Program and related options offer a chance to address these issues proactively and avoid hefty penalties and interest.
Key Programs for Resolving Incorrect ERC Claims
- Second Voluntary Disclosure Program (Deadline: Nov. 22)
- Businesses can repay the ERC, minus 15%, for claims filed in error during tax periods in 2021.
- Participants generally avoid penalties, interest, and repayment of interest received on ERC refunds.
- Claim Withdrawal Program (Ongoing)
- Allows businesses to request the IRS not process an ERC claim that hasn’t been paid yet.
- Treated as if the claim was never filed, with no penalties or interest applied.
- Consolidated Claim Process for Third-Party Payers (Extended to Dec. 31, 2024)
- Third-party payers can withdraw erroneous claims on behalf of clients without impacting valid claims.
- This program simplifies resolving ERC claims filed for multiple employers.
The Risks of Inaction
Businesses that fail to act face escalating risks. If the IRS later identifies incorrect claims, businesses may face:
- Repayment of the ERC in full.
- Additional penalties and interest.
- More severe compliance actions.
What Businesses Should Do Now
- Reexamine ERC Claims
- Review records to ensure eligibility. Note that some promoters may have referred to the ERC as a grant, business stimulus payment, or government relief.
- Use Available IRS Programs
- File for the Voluntary Disclosure Program or Claim Withdrawal Program if necessary.
- Consult Trusted Tax Professionals
- Avoid advice from high-pressure marketers and rely on verified tax experts.
- Request Installment Agreements (if needed)
- Businesses unable to repay the ERC immediately can apply for an installment plan by Nov. 22.
A Look Back: Results of the First Disclosure Program
During the first Voluntary Disclosure Program, over 2,600 businesses disclosed $1.9 billion in incorrect credits, showcasing the significant number of organizations impacted by improper claims.
Stay Vigilant and Act Now
The IRS continues to process valid ERC claims while combating improper ones. Taking proactive steps through these programs can save businesses from financial and legal challenges down the road.
For more information and to apply for these programs, visit the official IRS website or consult a tax professional today.
