By Debbie Tam
On February 8, 2024, the IRS presented a webinar to provide information on the Employee Retention Voluntary Disclosure Program (ERC-VDP). Erik W. Anderson, CPA, ERC Voluntary Disclosure Team Lead, provided details to tax professionals and interested taxpayers regarding the advantages of participation, eligibility requirements, the application process, and what happens after the application is received.
ERC-VDP.
On December 21, 2023, the IRS announced a new Voluntary Disclosure Program for businesses that claimed the ERC erroneously. The program is part of the IRS’ continuing efforts to combat dubious ERC claims. This special disclosure program allows taxpayers to repay 80% of the claim received. The program runs through March 22, 2024 (see IRS Launches ERC Voluntary Disclosure Program, 12/22/2023). For further details on the ERC-VDP, see Payroll Guide ¶20,905.
Current ERC fraud protection measures.
On September 14, 2023, the IRS announced an immediate moratorium on the processing of new ERC claims in response to the flood of claims received due to aggressive promoters and marketers pressuring businesses to submit ineligible claims. Anderson noted that, in January, IRS Commissioner Danny Werfel laid out a roadmap to the Senate Finance Committee on how the IRS plans to resume processing current inventory of ERC claims by using several fraud detection methods that have been implemented. The IRS will be completing transcription of amended paper returns and using new risk analysis for better fraud protection measures prior to resuming ERC claim processing. Anderson noted that a resumption date has not yet been determined.
Applying for more than one tax period.
Anderson explained that taxpayers who are applying for ERC-VDP for more than one tax period may use one Form 15434, Application for Employee Retention Credit (ERC) Voluntary Disclosure Program, for all the relevant periods when applying for the ERC-VDP, however, a separate payment must be made for each period.
Example: A taxpayer wants to apply for the ERC-VDP for the second quarter of 2020 and the third quarter of 2020 would complete a single Form 15434 for both quarters. However, the taxpayer would make a separate payment using EFTPS for the second quarter 2020 and separate payment for the third quarter 2020. When paying via EFTPS, the taxpayer would select Form 941, audit adjustment” as the tax type and “advanced payment of tax deficiency.” Further, because the taxpayer is applying for 2020 tax periods, the taxpayer must also complete and submit Form SS-10, Consent to Extend the Time to Assess Employment Taxes. Note that there is a separate Form SS-10 that is used specifically for the ERC-VDP. This form will say “ERC Voluntary Disclosure” in the upper right corner in the “In reply refer to” section. While payment is not due until the taxpayer signs the closing agreement, paying at the time while applying to ERC-VDP can speed up processing and resolve the case more quickly.
Completing Form 15434.
Anderson noted that filers have had some difficulty accessing the fillable smart form online. Filers should confirm they have a current version of Adobe Reader or Acrobat Pro to use the form.
- Part 1: General information about the filer must provided in this section including name, EIN, and address. The address provided should match the address used in 941 filings. Otherwise, Form 8822-B, Change of Address or Responsible Party – Business, should be submitted with Form 15434.
- Part 2: This section should only be completed if the filer is a third-party payer.
- Part 3: This section is used only to indicate a Power of Attorney to authorize another individual to represent the filer. Form 2848, Power of Attorney and Declaration of Representative, should be on file with the IRS. Otherwise, Form 2848 must be submitted with Form 15434.
- Part 4: In this section, the filer indicates the form used to claim the ERC by selecting from a drop-down menu, and the amount of nonrefundable and refundable employee retention credit amounts per period must be provided. The smart form will do the remaining calculation. Anderson explained that if a filer doesn’t know the exact amount of the refundable versus nonrefundable amount, a best estimate is acceptable. The IRS will be checking and reviewing all the forms.
The form must be submitted using the IRS’ Document Upload Tool.
Closing agreement.
Once the IRS has approved the request to participate in the ERC-VDP, a closing agreement will be sent. The filer must pay the full ERC-VDP amount per quarter or tax period, using EFTPS or risk being assessed for penalties and interest. Once the IRS has received the signed closing agreement and payment, the taxpayer’s account will reflect the eliminated ERC and no amended returns need to be filed. The terms of the ERC-VDP closing agreement cannot be appealed.
If the ERC-VDP request is rejected, the IRS will send Letter 6615 and provide an explanation why the request was not approved and will provide other solutions to resolve the issue.
Alternatives for ineligible taxpayers.
Anderson provided a couple of options for taxpayers who are ineligible for the ERC-VDP.
- Ineligibility reason: The ERC claim has not been processed and paid, or the refund check has not been cashed or deposited.
- Alternative: The taxpayer may use the ERC withdrawal process. Using the withdrawal process, taxpayers who filed an ERC claim may withdraw their submission, possibly avoiding future repayment, interest, and penalties.
- Ineligibility reason: Only a portion of the ERC claim is invalid.
- Alternative: Taxpayers that need to reduce the ERC claim can file an adjusted return. For example, the taxpayer can file Form 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, to correct the ERC amount claimed.
Webinar recording.
The webinar was recorded and will be available on the IRS Video Portal in a few weeks.
This article first appeared in Checkpoint’s Payroll Update.
For more information about the Employee Retention Credit Voluntary Disclosure Program, see Checkpoint’s Federal Tax Coordinator ¶T-10164.11.
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