The IRS has released several important Employee Retention Credit Updates. In addition, the deadline is approaching to participate in the second IRS ERC Voluntary Disclosure Program. Applications will be accepted only until Nov. 22, 2024.
This program is for employers who claimed and received an ERC refund for a tax period in 2021 but were not eligible. Like the first ERC-VDP, the program will allow claimants to repay ERC at a reduced rate of 85% of the credit; this is slightly less favorable than the original ERC-VDP that allowed employers to repay 80% of their credits. The Frequently Asked Questions about the second ERC Voluntary Disclosure Program can help employers understand the terms of the program.
This second program also waives penalties and interest on the full amount, not just the 85% returned. Accepted applicants must execute a closing agreement confirming that they are not entitled to ERC and will be required to provide the name and contact information for any preparer or advisor who assisted in claiming the ERC. This second round of the program is open for tax periods in 2021. Employers can’t use the second ERC VDP to disclose and repay ERC money from tax periods in 2020.
Bear in mind that like the first, this second ERC-VDP program is to provide relief for employers who submitted ERTC claims prepared by unscrupulous ERTC promoters or who did not fully understand the complex requirements of the credit. Many ERTC claims were valid and met the intent of the credit to keep people employed during the pandemic, particularly those prepared with a reputable accounting firm’s assistance. Warady & Davis LLP, for example, chose to take a very conservative approach and only assist clients with claiming the ERTC if they met quantifiable criteria for decline in gross receipts.
IRS Continues to Make Progress with Valid ERC Claims
The IRS continues to make progress processing the backlog of ERC claims, with the goal of paying out low-risk claims more quickly, including another 50,000 valid claims that are in payment processing. The agency intends to continue carefully processing low-risk claims, including those filed through Jan. 31, 2024, while also pursuing erroneous refunds with more than 30,000 “clawback” notices to recapture improper ERC payments, and 28,000 letters disallowing unpaid claims.
The agency emphasized those with ERC claims should not call IRS toll-free lines because additional information is generally not available on these claims as processing work continues. The IRS will keep the processing moratorium in place on ERC claims submitted after Jan 31, 2024.
Additionally, the IRS shared five more red flag issues they are regularly seeing in newly processed ERC claims; the agency recommends that businesses whose claims fall into any of these warning sign categories act quickly and consider participating in the second ERC-VDP or the ERC Withdrawal Program.
Questions?
Please contact your Warady & Davis LLP advisor(s) with your questions at 847-267-9600; [email protected].