Deadline looms Friday for ERC voluntary disclosure program

The Internal Revenue Service is urging businesses that have filed claims for the Employee Retention Credit to make sure they didn't incorrectly claim the credit and to come forward if they did, as the deadline for a voluntary disclosure program approaches.

In an email Thursday to payroll professionals, the IRS noted that employers who received an incorrect ERC by Dec. 21, 2023, either as a refund or as a credit on a tax return, can apply to the ERC Voluntary Disclosure Program. The option is available through this Friday, March 22, and allows a taxpayer to repay the incorrect ERC, minus 20%, for any tax period they weren't eligible for ERC. Generally, businesses that enter the voluntary program don't have to amend other tax returns affected by the incorrect ERC and don't have to repay interest they received from the IRS on an ERC refund.

The IRS announced the voluntary disclosure program last December as it faced an onslaught of dubious ERC claims from shady promoters. The IRS imposed a temporary moratorium on processing new ERC claims last September through the end of the year after receiving a surge of claims from businesses and so-called "ERC mills" promoting the tax credits in constant advertisements. 

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Last October, the IRS also offered a process for withdrawing bogus ERC claims. On Thursday, the IRS said businesses should quickly pursue the claim withdrawal process if they need to ask the IRS not to process an ERC claim for any tax period that hasn't been paid yet. Taxpayers who have already received an ERC check, but haven't cashed or deposited it, can also use the process to withdraw the claim and return the check, according to the IRS. The IRS said it would treat the claim as though the taxpayer never filed it, so no interest or penalties would apply.

"The window of opportunity is closing for those with questionable claims to fix things before they receive follow-up compliance action," said IRS Commissioner Danny Werfel in a statement last week. "We strongly urge businesses to review the Employee Retention Credit guidelines immediately before a key disclosure program closes, especially if they encountered a high-pressure push to apply for these credits. Taking action now will avoid potentially hefty penalties and interest if the IRS takes action later. The deals available now are good, and the cost and risk for bad claims will sharply escalate over time."

The tax extenders bill that the House passed on a bipartisan basis at the end of January would have paid for an enhanced Child Tax Credit, disaster tax relief, an enhanced Low Income Housing Tax Credit, and the extension of expired business tax breaks for writing off research and development expenses in the first year, 100% bonus depreciation and interest expensing by cutting off new claims for the ERC filed after Jan. 31, and imposing larger penalties on bogus ERC promoters. However, the legislation remains stalled in the Senate Finance Committee, with hopes dimming for passage this year.

House Ways and Means Committee chairman Jason Smith, R-Missouri, is continuing to push for the legislation to be passed. At the time of the ERTC's creation, his office said Friday in an email, the Congressional Budget Office projected the program would cost taxpayers $55 billion. However, as of last year, the ERTC program has cost taxpayers more than $230 billion, over four times CBO's original projection. The nonpartisan Joint Committee on Taxation estimated the ERTC repeal included in the Tax Relief for American Families and Workers Act would save the federal government approximately $77 billion, nearly the cost of the $78 billion legislation.