By Lisa M. Wood, CPA, MT – Director of Tax
Employers now can correct or withdraw erroneous claims for credits and refunds that involved the Employee Retention Credit (“ERC”). The ERC is a refundable tax credit available to employers that continued to pay their employees during the COVID-19 pandemic and had any of the following:
- Business operations were partially or fully shut down under a government order during 2020 or the first three calendar quarters of 2021, or
- Experienced the required decline in gross receipts during the eligibility period after March 12, 2020, through September 30, 2021, or
- Qualified as a recovery start-up business in the third or fourth quarter of 2021.
If you would like additional information about qualifying for the credit, please see our December 2022 article, “Is the promise of an Employee Retention Tax Credit refund too good to be true? It may be!” https://mybuckingham.com/insights/is-the-promise-of-an-employee-retention-tax-credit-refund-too-good-to-be-true-it-may-be
The IRS has increasing concerns with fraud and scams related to the ERC. Unfortunately, aggressive and misleading marketing campaigns from promoters resulted in many employers applying for the ERC even though they do not meet the qualifications. The IRS has implemented a Voluntary Disclosure Program (“VDP”) and a withdrawal program. The IRS implemented these programs to help small business owners who may have been convinced or misled by ERC promoters to file ineligible ERC claims. Both programs allow employers the opportunity to avoid potential penalties, interest, and civil and/or criminal litigation.
The VDP is available to any employer who received the ERC but is not entitled to it if:
- The employer is not under and has not been notified that they are under a criminal investigation,
- The employer is not under an IRS employment tax examination for the period in which they are applying for the VDP,
- The IRS has not sent the employer a notice and demand for repayment of part or all the ERC, and
- The IRS has not been notified by a third party that the employer is not in compliance.
To apply for the VDP, the employer needs to file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. This form is due no later than March 22, 2024, and must be submitted electronically, along with any required documentation, via the IRS’s Document Upload Tool. Form 15434 must include:
- Employer name, taxpayer identification number, address, and telephone number
- If the employer wishes to designate a practitioner to represent them, Form 2848 Power of Attorney and Declaration of Representative is required.
- The tax periods and form the ERC was claimed.
- The full amount of the ERC claimed including the refundable and non-refundable portions.
- Form SS-10 Consent to Extend the Time to Assess Employment Taxes if the ERC was claimed for any tax period that ended in 2020.
- The name address and phone number of the advisor or preparer who assisted with the ERC (if any), and a description of services the advisor or preparer provided.
The VDP has special repayment provisions. Only 80% of the claim is required to be paid back. Payment will be made via the Electronic Federal Tax Payment System (“EFTPS”). If the employer received interest from the IRS on the claim, it does not need to be repaid. The lower re-payment amount is to help employers comply without the financial stress of having to pay back the entire amount of the ERC when a percentage of the claim was paid to the promoter. Installment agreement requests are available to employers that cannot pay the entire claim. The installment agreement charges, and interest on the underpayment, will apply if the installment agreement is approved.
An employer may also withdraw its ERC claim. An employer is eligible for withdrawal if it filed an ERC claim and has determined that it does not qualify and has not received the refund. The claim can also be withdrawn if the employer has received the check but did not cash or deposit it. Withdrawn claims are treated as if they were never filed and are not subject to penalties or interest.
The IRS issued a moratorium last September on processing new ERC claims. Since then, they have enhanced their review of claims to attempt to combat widespread fraud. Their efforts have resulted in over 40,000 claims being disallowed or adjusted. They have also initiated more than 300 criminal cases against employers filing fraudulent ERC claims.
Our experienced team at Buckingham Advisors is here to help! If you have questions about the ERC or the disclosure or withdrawal programs, please contact your Buckingham Advisors representative.