^{This updates an article first published on Jan. 3, 2024.}

The IRS has announced a second Employee Retention Credit Voluntary Disclosure Program (VDP) to permit certain employers that erroneously claimed 2021 Employee Retention Credits (ERCs) to voluntarily repay 85% of the ERC payroll tax credit or amount received, and to enter into a closing agreement with the IRS that will eliminate their ERC eligibility without being subject to any civil penalty or interest. The first VDP ended March 22, 2024 and per the IRS, more than 2,600 taxpayers participated.

The new Voluntary Disclosure Program will only be available for a limited time, with a filing deadline of Nov. 22, 2024. The new ERC VDP is similar to the prior VDP with a few changes:

• It is only available for 2021 ERCs; and 
• Rather than the participating employer being able to retain 20% of the ERC amount, the new VDP retention amount is 15%.

Program highlights

• The repayment of only 85% of the ERC amount is intended to assist employers that may have paid a fee to a third-party return preparer or advisor in connection with obtaining their ERC.
• No interest or civil penalty will be assessed by the IRS if the 85% amount is repaid prior to execution of the closing agreement.
  • An employer that lacks the funds needed to meet the 85% repayment requirement may request an installment repayment arrangement, which will be considered by the IRS on a case-by-case basis. 
    • If the IRS agrees to repayment via installments, civil penalties and interest will be assessed against the employer.
• Any interest paid to the employer in connection with the ERC when an ERC refund check was received will not be required to be returned.
• If an agent, PEO, or CPEO claimed the ERC on the employer’s behalf using its own EIN (rather than the employer’s EIN), then in order for the employer to participate in the Program, the agent, PEO, or CPEO will be required to submit the Program filing for the employer.
• On account of the elimination of the employer’s entitlement to the ERC, the employer will not be required to file an amended income tax return or Administrative Adjustment Request to reduce the compensation deduction taken for the 2021 year per IRC Section 280C. If already filed, the employer should re-file to reverse the original filing.
• The IRS’s denial of an employer’s Program filing will not be subject to either administrative appeal or judicial review.
• Execution of a Program closing agreement will not have any impact on the IRS’s ability to investigate and prosecute any alleged criminal violation.

Who is eligible for the new ERC repayment program?

To be eligible for the Program, an employer that received a 2021 ERC payroll tax credit or refund check must meet each of the following requirements:

• The employer must not be eligible for or entitled to any ERC for the tax period(s) applicable to the Program filing.
  • This means that if the employer is eligible for any ERC amount for a particular tax period, it cannot utilize the Program to adjust the amount, and must instead file a new Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund, to change the amount of any ERC previously claimed for that tax period, as stated on the IRS website.
• The employer is not under criminal investigation and has not been notified by the IRS that it is under criminal investigation.
• The IRS has not received information from a third party, or acquired information from an enforcement action, as to a noncompliant ERC claim having been made by the employer.
• The employer is not under an IRS employment tax examination with respect to any tax period for which the employer is filing under the Program.
• The employer has not received notice and demand for repayment with respect to any portion of the applicable ERC.
• The employer has not received an IRS Letter 6577-C, Employee Retention Credit (ERC Recapture).
• The employer did not previously file an amended return to eliminate their ERC for the applicable 2021 tax period.
• The employer did not apply under the first ERC VDP for the same tax period(s).

How to participate

• The employer (or agent, PEO, or CPEO) must file IRS Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, by no later than 11:59 p.m. local time on Nov. 22, 2024.
  • Right-click the link to the form.
  • Select “Save link as” to download the form.
  • Use Adobe Reader or Acrobat Pro to open, fill out, sign, and save the completed form.
  • Submit to the IRS per the instructions on the Form, along with any required attachments, electronically via the IRS Document Upload Tool.
• Complete Form 15434 as follows:
  • Taxpayer’s name, taxpayer identification number, address, and telephone number.
  • Complete Form 2848, Power of Attorney and Declaration of Representative, if a practitioner will represent the taxpayer. 
  • Identify the 2021 tax period(s) for which the ERC was claimed, the form on which the ERC was claimed, and the full amount of the ERC.
    • If the tax period(s) for which the ERC was claimed include any period ending in 2020, a completed and signed ERC Voluntary Disclosure Program Form SS-10 (Consent to Extend the Time to Assess Employment Taxes) for the 2020 tax period(s) must be submitted with the Form 15434.
  • If the ERC was claimed by an agent, PEO, or CPEO on behalf of the employer, then the agent, PEO, or CPEO must attach a copy of the applicable pages of the Schedule R (Form 941), Allocation Schedule for Aggregate Form 941 Filers, that was attached to each Form 941 on which the ERC was claimed on behalf of the employer.
  • If a return preparer or advisor assisted the employer with respect to the ERC claim, its name, address, and telephone number must be included, as well as a description of the services it provided.
• If the IRS approves the taxpayer’s Form 15434 filing, it will mail a closing agreement to the taxpayer for execution.
  • The closing agreement must be executed and returned within 10 days of the date of the mailing by the IRS.
    • A taxpayer can request an extension for good cause within that 10-day period.

How to repay the ERC amount

Upon submission of the Form 15434, the repayment must be made online using the Electronic Federal Tax Payment System (EFTPS).

• A separate payment must be made for each tax period (select “Advanced Payment”).
• Full payment for all tax periods must be made by the date the taxpayer executes the closing agreement.

What does CohnReznick think?

The original Program was established by the IRS as an incentive to employers that had concluded that their ERC filings were erroneous. As the IRS has reported that over 2,600 taxpayers participated in the first Program, it has determined to give employers with invalid 2021 ERCs another opportunity to voluntarily return most of the ERC amount(s) without interest or penalty. The new Program is only available until Nov. 22, 2024. Consequently, it is critical that employers that are not confident in the legitimacy of the 2021 ERCs they received should work with their tax advisor to make a determination in this regard while the Program is still available.

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}