Reminder: ERC Voluntary Disclosure Program Ends March 22

Businesses that mistakenly submitted a claim for an Employee Retention Credit (ERC) have until March 22 to take advantage of the IRS’s Voluntary Disclosure Program. The IRS urges all employers to review their eligibility for the ERC and to voluntarily correct any mistakes to avoid penalties and interest. (IR 2024-39, 2/13/2024)

ERC eligibility.

The ERC is pandemic-era tax credit for employers that kept paying their employees during the COVID-19 emergency. To be eligible for the credit, the business must have:

• Operated a trade or business (or was tax-exempt organization) that had employees to whom it paid wages between March 13, 2020, and December 31, 2021.
• Experienced the required decline in gross receipts during the eligibility periods in 2020 and 2021.
• Been shut down due to a government order, or
• Qualified as a recovery startup business for the third or fourth quarters of 2021.

Anyone who incorrectly claims the credit must pay it back and may also owe penalties and interest.

Note. Employers can use the ERC Eligibility Checklist to determine if they were eligible for the credit or the IRS’s interactive tool.

The IRS identified the following red flags that can indicate an incorrectly claimed ERC:

• Claiming the ERC for all quarters that it was available.
• Claiming the ERC if any government order was in place in the area, even if the business’ operations weren’t affected or the business chose to suspend operations voluntarily.
• Claiming the ERC for all wages paid to every employee on their payroll for all quarters it was available. See the Employee Retention Credit 2020 vs 2021 Comparison Chart.
• Claiming the ERC based on supply chain issues. The rules on supply chain disruptions and examples are discussed in a 2023 legal memo.
• Claiming the ERC for an entire quarter when the business’ operations were fully or partially suspended due to a government order for portion of the quarter only.

According to the IRS, some businesses were misled into filing claims for the ERC by promoters who misrepresented or oversimplified the eligibility rules. Businesses that received the credit but didn’t qualify should apply for the IRS’s voluntary disclosure program before the March 22 application deadline.

For more information about the IRS’s ERC Voluntary Disclosure Program, see Checkpoint’s Federal Tax Coordinator ¶T-10164.11.