IRS Launches Voluntary Disclosure Program for Businesses That Filed Dubious ERC Claims

The Internal Revenue Service (IRS) has launched a new program that aims to assist businesses that mistakenly filed Employee Retention Credit (ERC) claims and want to repay the funds they received in error.

The IRS has been working on this Voluntary Disclosure Program for several months as part of its larger initiative to address aggressive marketing tactics that misled employers into filing dubious claims, the agency said in a Thursday (Dec. 21) press release.

The Voluntary Disclosure Program, which will run through March 22, allows employers to repay 80% of the claim they received, according to the release.

In addition to this program, the IRS is urging employers with pending ERC claims to consider a separate withdrawal option, which allows them to remove their claim without incurring any interest or penalties, the release said.

The IRS has already received over $100 million in withdrawals as it intensifies audits and criminal investigations in this area, per the release.

“The disclosure program provides a much-needed option for employers who were pulled into these claims and now realize they shouldn’t have applied,” IRS Commissioner Danny Werfel said in the release. “From discussions we have had with taxpayers and tax professionals around the country, we understand that there are many employers eager to correct their error, but who remain concerned about their ability to pay back the portion of the credit that has been lost to the promoter that brought them into this mess.”

To qualify for the program, employers must provide the IRS with information about any advisors or tax preparers who assisted them with their claim, according to the release. This includes their names, addresses and telephone numbers, along with details about the services provided.

The IRS has chosen the 80% repayment figure because many ERC promoters charged a percentage fee, resulting in recipients not receiving the full amount, the release said.

In September, the IRS placed a moratorium on processing new claims for the ERC, saying that it had seen an influx of ineligible claims together with aggressive marketing tactics that are putting businesses at financial risk when applying for the ERC.

With the moratorium, the IRS aimed to prevent further abuse of the program and protect honest small business owners from scams that pressure them to apply.

In November, the Financial Crimes Enforcement Network (FinCEN) issued an alert to financial institutions on fraud schemes related to the ERC. The alert highlighted certain red flags to help financial institutions identify and report suspicious activity.