ERC Program Explained: Eligibility, Applications & Compliance 2024
| Recession or not, we have resources to help your business master this moment of high interest rates, labor shortages, sticky inflation, and slower growth. We've put together our Agility & Excellence Resource Center to bring you strategies and solutions with a finger on the pulse of what's ahead. |
The IRS has reopened its voluntary disclosure program for employee retention credit claims.
The program, which allows taxpayers to self-report ERC claims for tax year 2021 that they think might be improper, will run through Nov. 22, the IRS said Aug. 15. In Announcement 2024-30, 2024-36 IRB 1, the agency said businesses using the voluntary disclosure program must repay 85% of the credit they received, and the agency will waive any penalties, interest and future audits.
The IRS launched the voluntary disclosure program, which was suspended in March, to help reduce the rising backlog of unprocessed claims following a moratorium on new claims imposed in September 2023.
The IRS also said it plans to mail up to 30,000 letters to reverse or recapture improper ERC claims this fall. Taxpayers receiving a recapture letter are ineligible for the disclosure program, the agency emphasized.
“This new round of letters serves as another incentive for businesses that believe they received an erroneous Employee Retention Credit payment to come forward and participate in the disclosure program and resolve the matter on more favorable terms,” IRS Commissioner Daniel Werfel said in a release.
The IRS estimated that the new letters represent over $1 billion in claims for tax year 2021.
The announcement signals an increased effort by the IRS to begin processing ERC claims amid frustration from businesses about delays in receiving the benefit. The ERC was created by the Coronavirus Aid, Relief, and Economic Security Act to help struggling businesses pay their employees during the COVID-19 pandemic by establishing a refundable credit against employer taxes.
The IRS said Aug. 8 that it denied 28,000 incorrect claims and is working to send payments for another 50,000 valid claims. Tax professionals and businesses have largely disagreed with the denials so far, with many casting doubts on the agency’s analytics for detecting high-risk claims.
Those concerns aren’t going away anytime soon.
Daniel Mayo of Withum Smith+Brown PC said his firm plans to appeal over 100 ERC denials to the IRS, adding that he suspects some taxpayers will defer to the agency’s reasoning and assume they weren’t eligible for the credit, which might not be the case.
Regardless, Mayo said he appreciates that the IRS lowered the voluntary disclosure discount by only 5% and has shown that it is serious about the program.
Justin Elanjian of Stout Risius Ross LLC said he’s not surprised that the IRS reopened the program. “It does not seem coincidental in any way that the announcement would come two weeks after the wave of disallowance letters, and that when announcing this program there’s also a mention of recapture letters going out,” he said.
The IRS noted its other ongoing ERC compliance work. As of July 1, the Criminal Investigation division has initiated 460 criminal cases, with potentially fraudulent claims totaling nearly $7 billion, according to the release.