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The Employee Retention Tax Credit (ERTC) is the only remaining pandemic-era incentive that can still be claimed. While the program officially ended in September 2021, businesses have until the end of 2024 or 2025 to submit a claim. Unfortunately, there has been a sharp increase in the number of ineligible claims filed over the last year. Despite updates from the IRS about fraudulent activity, the number of inappropriate claims continued. To address the problem, the agency announced several changes, including a processing moratorium and a new withdrawal program. The former provided additional time to closely scrutinize existing claims, while the latter made it easy for a business to withdraw ineligible claims that had not been paid.
Yet another solution was needed to help those who filed an ineligible claim and had already received payment. Last month, the IRS announced a new ERTC Voluntary Disclosure Program, which makes it easy to address repayment and related issues. Key benefits of participation include the repayment of 80% of the credit received, with the 20% reduction not taxable, no interest due on the refund amount, and no penalties charged, assuming repayment is received when the closing agreement is submitted. To help clients, prospects, and others, JLK Rosenberger has summarized the key details below.
Any business or tax-exempt organization may participate in the program, assuming all of the following conditions are satisfied, including:
- The credit claimed on an employment tax return has been processed and paid as a refund, which has been cashed or deposited.
- It has become clear the organization did not qualify for the credit.
- The taxpayer is not under an employment tax examination by the IRS.
- No criminal investigation is currently being conducted.
- The IRS has not reversed or notified you of the intent to reverse the ERC to $0. This includes a letter or notice from the agency disallowing the credit amount.
It is important to note that those who used a third-party payer to file employment tax returns or to claim the ERTC are not individually allowed to participate. The third-party payer is responsible for program application. In addition, for those who willfully submitted a fraudulent claim or assisted or conspired in such conduct, participation in this program will not exempt the taxpayer from criminal investigation or prosecution.
Program Application Process
Those who meet the eligibility criteria can complete an application package which includes the following steps:
- Prepare and submit IRS Form 15434 – Application for Employee Retention Credit Voluntary Disclosure Program.
- Prepare and submit ERC-VDP Form SS-10 if the credit was claimed for tax periods during 2020.
- Ensure an appropriate representative signs the ERC-VDP application and other documentation as needed.
- The deadline for submission is March 22, 2024, at 11:59 pm. All applications need to be submitted electronically using the IRS Document Upload Tool. The agency will not accept any applications submitted by mail, fax, or other means.
If the application is accepted, the taxpayer must repay the full amount minus 20%. If the full amount cannot be repaid, entering into an installment agreement may be possible. If this is needed, include Form 433-B Collection Information Statement for Businesses with the application. All requests for installment agreements will be considered on a case-by-case basis.
Once the application is received, the IRS will review the documentation and verify program eligibility. Taxpayers will be notified via mail about the application receipt and whether the agency will proceed with the application.
- the IRS will send a closing agreement.
- the taxpayer must pay the entire voluntary disclosure program amount using the IRS Electronic Federal Tax Payment System. If an installment agreement is approved, a Form 433-D Installment Agreement form will be included in the closing agreement.
- an authorized representative must sign all documents and return them to the IRS.
After the closing agreement has been signed, an adjustment will be made to reflect the eliminated ERTC amount. There is no need to submit amended returns correcting ETRC credits. Finally, the terms of the closing agreement are final and cannot be appealed.
The new Voluntary Disclosure Program is welcome news for those who improperly received credit payments. However, before submitting any information to the IRS, it is imperative to consult with a qualified tax advisor who can ensure eligibility and manage the application process. If you have questions about the information outlined above or need assistance with a tax or accounting issue, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.