The Internal Revenue Service (IRS) has launched an initiative for small business owners who have mistakenly claimed Employee Retention Credits (ERC). The new Voluntary Disclosure Program offers an opportunity for businesses to correct their claims and repay the credits at a discounted rate. This announcement is particularly relevant for small business owners who have been misled into making dubious ERC claims, a situation exacerbated by aggressive marketing tactics.
Key Features of the New Voluntary Disclosure Program
- Deadline for Application: Employers interested in this program must apply by March 22, 2024.
- Repayment at Discounted Rate: Accepted applicants will repay only 80% of the ERC amount they received.
- No Penalties for Compliant Repayment: The IRS will waive interest and penalties for those who comply with the program’s repayment terms.
- Installment Agreements: Employers facing difficulty in repaying the required amount may negotiate installment agreements, subject to IRS approval.
Background and Context
The ERC was designed as a relief measure during the COVID-19 pandemic, but its implementation saw widespread misunderstandings and abuses. The IRS reports that more than $100 million in ERC claims have already been withdrawn. The new program is an extension of these efforts, aiming to rectify erroneous claims without imposing undue financial strain on businesses.
IRS Commissioner’s Statement
IRS Commissioner Danny Werfel emphasized the program’s role in providing relief to employers who inadvertently got entangled in questionable ERC claims. Werfel highlighted that the initiative is also a step towards gathering information on promoters responsible for misleading businesses.
- Form Submission: Employers must file Form 15434 via the IRS Document Upload Tool.
- Disclosure Requirements: Applicants need to provide details of advisors or tax preparers involved in their ERC claims.
- Special Provisions for Payroll Outsourcing: Employers using third-party payroll services must ensure that these entities file the necessary forms.
Ongoing Efforts and Warnings
The IRS is intensifying its audit and criminal investigation efforts in the realm of ERC claims. Employers are warned against the ongoing aggressive marketing tactics surrounding the ERC. With the new program, the IRS aims to strike a balance between penalizing wrongful claims and offering a corrective path for genuine mistakes.
Implications for Small Businesses
This program is particularly crucial for small business owners who may have limited resources to deal with potential penalties and interest on erroneous ERC claims. It offers a fair chance to rectify mistakes without bearing the full financial burden.
The Voluntary Disclosure Program reflects the IRS’s commitment to ensuring compliance while acknowledging the challenges faced by small businesses in navigating complex tax relief measures. By providing a structured and lenient way to correct errors, the IRS is helping maintain the integrity of the tax system, while also being considerate of the challenges faced by small businesses during the pandemic era.