IRS Introduces the Second Employee Retention Credit Voluntary Disclosure Program

Issue No: 2024-31

Summary

The IRS has introduced the second Employee Retention Credit Voluntary Disclosure Program (“ERC-VDP”) for nonqualifying claims that were filed by employers for any quarter in 2021. The IRS is no longer accepting ERC VDPs for the 2020 tax period.[1] This program will allow ERC recipients to come forward and pay back most of their claims while still retaining some of the funds.

In Detail

The ERC-VDP period will be open through Nov. 22, 2024, and provides a path for businesses to correct potentially improper or unqualified claims.? Coming forward would allow taxpayers to avoid future audits, penalties, and interest. The ERC-VDP allows businesses to keep 15% of the total credits for all applicable quarters in 2021. ERC-VDP participants will also not be required to repay any overpayments of interest received for applicable quarters in 2021.? The first Employee Retention Credit Voluntary Disclosure Program, which ran from December 21, 2023, through March 22, 2024, allowed taxpayers to keep 20% of the total credits.

To qualify for the second ERC-VDP, employers must:

1. Complete and send an application package for the second ERC Voluntary Disclosure Program,
2. Voluntarily pay back 85% of the ERC for applicable quarters in 2021, excluding interest received,
3. Cooperate with any requests from the IRS for more information, and
4. Sign a closing agreement. [1]

Taxpayers who have previously engaged with a firm to submit ERCs based on a contingent fee arrangement should consider reevaluating their ERCs for all applicable quarters in 2021.

All businesses including tax-exempt organizations may be eligible for the second ERC-VDP program for each applicable quarter in 2021. Employers must meet all of the below-listed requirements to be eligible for the second ERC-VDP:

• The ERC was claimed on a 2021 employment tax return has been processed and paid as a refund before August 15, 2024 which has been cashed or deposited, or has been paid in the form of a credit to another quarter.[2]
• The IRS has not reversed or provided notification to reverse all or a portion of your ERC.
• The employer now believes it is entitled to $0 ERC for an applicable quarter in 2021.
• The employer is not under employment tax examination (i.e., IRS audit).
• The employer is not under criminal investigation by the IRS.[3]

?After going through the ERC-VDP process, employers will be notified of the results. Employers who are approved under the second ERC-VDP can expect a closing agreement from the IRS. A full repayment of the balance of credits claimed for all applicable quarters is required before submitting an executed agreement to avoid penalties and interest. [1]

Insights

If you believe your business may have filed a potentially ineligible ERC claim and you have already received funds, you have until November 22, 2024, to apply to repay a portion of the credits for all applicable quarters in 2021.

Please contact our team to verify ERC eligibility for any applicable quarters in 2021 and determine if you should pursue the second ERC-VDP to retain credits and avoid future audits, along with penalties and interest.

NOW Expertise

If you have any additional questions, please contact:

Mike Shaikh , State & Local Tax Partner

Kimberley Peterson McGuire , IRS Controversy Subject Matter Expert

Sharvil S., Credits & Incentives Leader

Steve Kralik , State and Local Tax Managing Director

Ivan C. Yates, J.D., MST , State & Local Tax Senior Manager

[1] IR-2024-213

[2] IRS FAQs about second ERC-VDP (Frequently asked questions about the second Employee Retention Credit Voluntary Disclosure Program | Internal Revenue Service (irs.gov))

[3] Taxpayers that are not eligible to participate in VDP because the ERC has not been paid may still consider the ERC withdrawal process.

[4] IRS FAQs about second ERC-VDP