IRS Voluntary Disclosure Program Expires – What’s Next with the ERC?

On March 22, 2024, the IRS suspended the Voluntary Disclosure Program (VDP), which had previously allowed employers to repay Employee Retention Credit (ERC) dollars at 80% of the amount they received (a 20% discount). This is one of several programs that the IRS introduced to combat the flood of erroneous ERC claims it believes were filed. Since the date of this deadline, the IRS reported the VDP initiative yielded 225 million in ERC dollars from over 500 submissions, with another 800 submissions still yet to be processed. This averages to approximately $450,000 per ERC claim repaid under the program.

It appears the IRS may reintroduce the VDP but on different terms. Nothing has been officially announced by the IRS; however, top IRS officials indicated a new VDP is in discussion. At the end of February, the Department of Treasury asked for public comments on IRS Form 14534, “Application for ERC VDP,” with a due date of April 29, 2024.  It is unlikely the IRS would ask for public comments on this form if it didn’t intend to reintroduce the VDP at a future date.

Expectations of Employers So Far

When registering for the VDP, employers were required to disclose the name and address of each preparer or advisor that assisted them in filing their ERC refund claim.  Employers were required to specifically delineate the services provided by these individuals.  This data will support the IRS in its ongoing enforcement activities.

Employers that entered the IRS VDP and repaid 80% of their ERC claim accepted additional responsibilities beyond the initial disclosure of an erroneous claim. One of the pivotal obligations includes the potential requirement that the employer assist in further investigations related to ERC matters. This assistance might require the employer to provide comprehensive documentation, records and even personal testimony regarding its ERC claims or practices.  This participation by the employer could entail a deeper level of involvement with the IRS, extending beyond merely correcting past errors. By entering the VDP, employers may agree to an open-book policy with the IRS, where cooperation can be requested in broader investigations or audits concerning the ERC.

Ongoing IRS Enforcement

For employers who received ERC refunds or submitted ERC claims, it is important to remember that IRS enforcement activities of ERC are ongoing.  The rhetoric from the IRS indicates an increased level of enforcement activity going forward. It is critical to be prepared for additional information requests (or even a notice) from the IRS initiating an audit. The first step in deciding whether to repay a claim or possibly withdraw an unpaid claim is to have an ERC specialist closely review the claim.

Our team of senior ERC and tax professionals can ensure that supplementary workpapers and proper documentation exist to support the current claim amount and identify other possible areas of concern. We’ll assist with revising the claim to a supportable amount, if upon review we determine the current claim amount is not defendable. Submitting an adjusted claim that is adequately supported may be the best course of action. Our team can help you make this determination.

Be Prepared

It is extremely important that employers are prepared. In the event we analyze your ERC situation and determine your documentation is inadequate to support the claim, we will work with you on next steps and considerations.

This may entail assistance in documenting your fact pattern and level of compliance (full or partial) with the ERC guidelines. It could also involve considering a repayment of the ERC claim using an IRS program that is offered at the time. If the IRS enacts another version of the VDP soon, we can also analyze its merits and possible impact on your company.   Please contact the Sikich ERC team here.

About our Authors

Tom Bayer, CPA, CExP, has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He has deep experience providing a range of accounting, tax, and business advisory services to commercial clients across industries.

Kellie Fedkenheuer, CPA/CFF, CFE, oversees and manages litigation support, forensic accounting and consulting engagements. She has assisted government agencies, government contractors, and commercial clients with claims related to both public and private projects.

Jim Brandenburg, CPA, MST, possesses extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions, and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.

Jason Boberg, CPA, CFE, has in-depth experience conducting and managing litigation support services, expert witness testimony, forensic accounting, fraud/investigation services, financial consulting, and performance audits for commercial clients and federal and state government entities.