In Announcement 2024-3 the IRS has released its Employee Retention Credit Voluntary Disclosure Program (VDP) to be used by those who have received a refund of taxes under the program and who now wish to return those funds.  The IRS released News Release IR-2023-247 at the same time to describe the program, along with Form 15434 (December 2023) that must be used to apply to enter the program.

The program will be open for three months, ending on March 22, 2024.

The Voluntary Disclosure Program

The IRS summarizes the program in the News Release as follows:

As part of an ongoing initiative aimed at combating dubious Employee Retention Credit (ERC) claims, the Internal Revenue Service today launched a new Voluntary Disclosure Program to help businesses who want to pay back the money they received after filing ERC claims in error.

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. The special disclosure program runs through March 22, 2024, and the IRS added provisions allowing repayment of 80% of the claim received.

The News Release provides the following justification for the agency only requiring 80% of the claim to be repaid:

The IRS selected an 80% repayment because many of the ERC promoters charged a percentage fee that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.

It is crucial to remember that the program is not restricted to those who paid a contingent fee to a promoter in order to obtain the credit. An employer who applied for the credit without any outside assistance would still be eligible for the reduced repayment under this program.

The News Release also announced that the IRS is sending out an additional 20,000 letters with proposed adjustments that will recapture erroneously claimed ERC.

As part of this expanding effort for employers that claimed an erroneous or excessive ERC, the IRS also announced today it has started sending up to 20,000 letters with proposed tax adjustments that will recapture the erroneously claimed ERC. These mailings – which are on top of the 20,000 denial letters announced earlier in December – are currently just for tax year 2020, and work continues for tax year 2021, with additional mailings planned. If the IRS identifies an employer that has received excessive or erroneous ERC, the agency will reclaim that ERC through normal tax assessment and collection procedures.

“These letters are another incentive for businesses that believe they received an erroneous Employee Retention Credit payment to come forward and participate in the disclosure program," Werfel said. "Our compliance activities involving these payments continue to accelerate, and the disclosure program's 80% repayment figure is much more generous than later IRS action, which includes steeper costs and greater risk. We hope these taxpayers take advantage of this window now.”

Eligibility to Enter the Program

Announcement 2024-3 provides that an employer that has claimed the ERC and received a credit or refund is eligible to participate in the program, provided that:

• The participant is not under criminal investigation and they have not been notified that the IRS intends to commence a criminal investigation;

• 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;

• 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; and

• The participant has not previously received notice and demand for repayment of all or part of the claimed ERC.

Employer Used a Third-Party Payer

If the employer used a third-party payer (an agent under IRC §3504 or a professional employer organizer) that claimed the ERC on an employment tax return under the third-party payer’s EIN rather than the employer’s EIN, the Announcement provides that the employer “may participate in this Voluntary Disclosure Program, but the third-party payer must submit the application described in Section 4 of this announcement on the participant’s behalf.”

Terms of the ERC Voluntary Disclosure Program

The Announcement provides the following terms for the ERC Voluntary Disclosure Program (with emphasis added for key provisions):

• Employment Tax Adjustments – The participant is not eligible for, or entitled to, any ERC, including both the refundable and non-refundable portions, for the tax period(s) at issue.

• The participant will remit back to the Department of the Treasury 80% of the claimed ERC, including both the refundable and non-refundable portions.

• The participant will not be required to repay any overpayment interest received. If the participant makes full payment of 80% of the claimed ERC prior to executing the closing agreement, no underpayment interest will apply. If the IRS approves a request for an installment agreement, interest may apply from the agreement date.

• Income Tax Effects -- Because the settlement eliminates a participant’s eligibility for and/or entitlement to all of the claimed ERC, participants are not required to reduce wage expense with respect to any of the previously claimed ERC. Consequently, if they had not previously reduced wage expense by any of the claimed ERC, participants need not file amended returns or Administrative Adjustment Requests (AARs) to reduce wage expense. Correspondingly, if they had previously reduced wage expense by any of the claimed ERC, participants should not reduce wage expense by any of the claimed ERC if they file an amended return or AAR adjusting the previous reduction to wage expense. Pursuant to the settlement, a participant has no income with respect to the resolution of the employment tax obligation by remittance of payment of only 80% of the claimed ERC, including both the refundable and non-refundable portions.

• Preparer/Advisor Information – If a return preparer or advisor assisted or advised the participant with any portion of the claim for credit or refund, the participant will provide the name, address, and phone number of the preparer(s) or advisor(s) who assisted with the claim for credit or refund and a description of services provided by the preparer or advisor.

• Application of Penalties – The IRS will not assert civil penalties related to the underpayment of employment tax attributable to the claimed ERC against a participant of this Voluntary Disclosure Program under Announcement 2024-3 that remits full payment of 80% of the claimed ERC prior to executing the closing agreement.

• The participant will execute a closing agreement, as more fully described in Section 4(3) of the Announcement.

The News Release provides more information about penalties and interest that will be imposed for those who pay the balance due via an installment agreement.

The IRS will not charge program participants interest or penalties on any credits they repay. However, if the employer is unable to repay the required 80% of the credit at the time of signing their closing agreement, then the employer will be required to pay penalties and interest in connection with entering into an installment agreement.

Procedures for the Program

Section 4 of the Announcement provides detailed procedures for participating the ERC Voluntary Program.

Filing Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program

Those who wish to enter the program must submit Form 15434, a form developed by the IRS specifically for this program, per the Announcement:

Participants in this Voluntary Disclosure Program must notify the IRS of their election by completing and submitting Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, on or before 11:59 pm local time on March 22, 2024. Participants must submit Form 15434 and any required attachments electronically via the Document Upload Tool at irs.gov/DUT.

Per the Announcement, the Form must be prepared under penalties of perjury and:

• Include 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;

• Identify 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;

• 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. The ERC Voluntary Disclosure Program Form SS-10 is available at htttps://www.irs.gov/pub/irs-utl/form-ss10-202-ercvd.pdf;

• 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; and

• 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 (see this section of the form below).

The instructions provide the following information about how when this section is required to be completed in full:

Line 16. Did an individual, business, and/or organization(s) advise you to claim the ERC

Check the appropriate box (Yes/No) to indicate if an individual, business, and/or organization(s) advised you to claim the ERC. If “No”, move to the next section.

If “Yes”, compete lines 17-24 for the preparer/advisor. If more than one individual, business or organization advised you to claim ERC, click the “Add Additional Preparer/Advisor” button below Line 24 to add another set of Lines 17-24; repeat if necessary. Complete Lines 17-24 for each preparer/advisor who advised you to claim ERC.

Payments Under the ERC Voluntary Disclosure Program

Section 4(2) of the Announcement details what participants will need to pay to become part of this program and receive its benefits.  The Announcement notes:

Form 15434 will help a participant calculate how much they will be required to pay to the Department of the Treasury under the terms of the ERC Voluntary Disclosure Program.

A participant must use the Electronic Federal Tax Payment System (EFTPS) to submit an online payment(s). Payment should be made separately for each tax period upon submission of Form 15434. For each EFTPS payment, select the category “Advanced Payment.” Participants should not make a single, lump-sum payment for multiple tax periods to ensure such payments are accurately credited to the correct tax period. Full payment of the liabilities under this Voluntary Disclosure Program should be made by the date the closing agreement described in subsection (3) is executed by the participant. Participants who are unable to remit full payment of the 80% of claimed ERC may be considered for an installment agreement, pending approval.

The section of Form 15434 used to calculate the balance to be paid is shown below.  In this case the taxpayer had claimed $30,000 of ERC for each of the quarters and is now required to pay back $168,000 of the $210,000 that had been paid to the employer.

Per the Form 15434 instructions, the Form must be filed as follows:

By 11:59pm local time on March 22, 2024, upload your reply using your computer or mobile device via the Document Upload Tool at irs.gov/DUT. You may also go to irs.gov and search DUT. See Assembling the Application for additional information.

After arriving at the DUT website, you'll acknowledge the authorized use and privacy statement. Next, indicate “No” for access code. After that, type 15434 to pull up Form 15434 submission portal and answer the questions to upload your documents. For additional information, go to www.irs.gov/ERC and click on the Voluntary Disclosure Program link to locate the VDP Frequently Asked Questions.

The instructions provide the following information for assembling the application.

To ensure the application is timely and correctly processed, submit all required documents in the following order:

1. Form 15434 Application for Employee Retention Credit Voluntary Disclosure Program.

2. ERC-VDP Form SS-10, Consent to Extend the Time to Assess Employment Taxes, if Part IV, General Information, includes tax period(s) ending in 2020. See Part IV below for more information.

3. Form 8822-B, Change of Address or Responsible Party – Business, if applicable. See Part I, Taxpayer Address, later.

4. Form 2848, Power of Attorney and Declaration of Representative, if applicable. See Part III, Authorizing another individual to represent you before the IRS.

Complete every applicable line item on Form 15434. Ensure Taxpayer’s Name and EIN fields at the top of page 2 and any additional pages of Form 15434 are completed, and match Line 1 and Line 2 on page 1. Only complete submissions that include all pages of Form 15434 and any required attachments can be processed. Typing the information on Form 15434 can help ensure timely processing. (Note: The form instructions don’t need to be submitted.)

The instructions also provide information if the taxpayer finds they need to correct a previously filed Form 15454:

If you need to correct a previously submitted Form 15454 application package and have not received a letter notifying you of an error with your application, submit a new, complete, corrected, Form 15434 with “amended” written at the top of Form 15434 so it is understood to process the new form and disregard prior submission(s). Submit the amended Form 15434 following When and Where to File, above. Exception: If an IRS employee assigned to process your previously submitted Form 15434 has contacted you, submit the amended Form 15434 to that employee.

Closing Agreement to Be Executed

Participants in the ERC VDP will required to sign a closing agreement drafted by the IRS per Announcement Section 4(3).  The Announcement provides:

After receiving the requested information, the IRS will prepare a closing agreement under section 7121 of the Code in accordance with the terms of the settlement.

The IRS will mail the closing agreement to the participant who must sign and return it to the IRS within 10 days of the date of mailing by the IRS. The IRS may grant an extension for good cause to participants who request additional time within the 10-day period. Full payment of the liabilities under this Voluntary Disclosure Program should be made by the date the closing agreement is executed by the participant.

As discussed in Section 4(2), participants who are unable to remit full payment of the liabilities under this Voluntary Disclosure Program may be considered for an installment agreement, pending approval. 

The Not So Great “Other Matters” 

Section 4 closes with two additional matters, neither of which are likely to help those participating feel a lot better about the program.

• Denial of a participant’s request to participate in this Voluntary Disclosure Program is not subject to judicial review or administrative appeal.

• Execution of a closing agreement under this Voluntary Disclosure Program does not preclude the IRS from investigating any associated criminal conduct or recommending prosecution for violation of any criminal statute, and does not provide any immunity from prosecution.

IRS FAQ on the Voluntary Disclosure Program

The IRS also has posted a set of frequently asked questions on the Voluntary Disclosure Program.  Question 5 provides the following warnings to those who don’t participate in the program, deciding to take their chances either that their claim won’t be examined or that they will prevail upon exam.  It begins by warning employers that the IRS is expanding its methods used to identify questionable claims:

The IRS continues to identify new methods of analyzing ERC claims to identify ineligible taxpayers. If you claimed and received ERC you're not entitled to, and you don't participate in ERC-VDP to correct it, you risk detection by the IRS, which could lead to substantial interest and penalties and increase your risk of criminal investigation and prosecution.

The IRS follows this up with a table showing the various items of interest and penalty that a taxpayer could be liable for upon exam that would not apply if the taxpayer is accepted into the VDP.

The IRS also adds a warning about potential criminal charges as well in the answer to this question:

Criminal charges related to taxes can include, but are not limited to, tax evasion (IRC 7201), filing a false return (IRC 7206(1)), false claims (18 USC 287) and false statements (18 USC 1001). A person convicted of tax evasion is subject to a prison term of up to five years and a fine of up to $250,000. Filing a false return subjects a person to a prison term of up to three years and a fine of up to $250,000.

However, the IRS notes that participation in the VDP, even if a closing agreement is signed, will not fully protect an employer for potential criminal charges.

Please note that if you willfully filed an employment tax return that fraudulently claimed ERC, or if you assisted or conspired in such conduct, filing for ERC-VDP will not exempt you from potential criminal investigation and prosecution.