Should You File an Application Under the IRS' ERC Voluntary Disclosure Program?

The Internal Revenue Service (IRS) has opened a limited-time Voluntary Disclosure Program for businesses that need to correct improper Employee Retention Credit (ERC) filings. Under the IRS' ERC Voluntary Disclosure Program (ERC-VDP), eligible businesses can repay just 80 percent of their improper ERC refunds while avoiding liability for interest and penalties.

But, as Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, business owners must consider several factors when deciding whether to file an application under the ERC-VDP. Here are some examples of these factors:

Filing Under the ERC-VDP Does Not Guarantee that the IRS Will Accept Partial Repayment

Just like filing for ERC withdrawal, filing an application under the ERC-VDP does not guarantee that the IRS will accept your business’s filing. If the IRS determines that your business doesn’t qualify under the ERC-VDP, it can reject your business’s application.

Even more importantly, as the IRS makes clear, “if you willfully claimed an ERC that is fraudulent, or if you assisted or conspired in such conduct, applying to the ERC-VDP will not exempt you from potential criminal investigation and prosecution.” As a result, submitting a voluntary disclosure to the IRS can be very risky. With this in mind, it is essential that business owners consult with experienced tax counsel before they file.

Businesses Filing Under the ERC-VDP Must Fully Cooperate with the IRS

Filing under the ERC-VDP isn’t necessarily a one-step process. The IRS may request additional information—and if it does, the business must fully cooperate with the IRS' requests in order to remain eligible. Here, too, voluntarily providing information about a fraudulent filing to the IRS can be risky, so careful decision-making is required.

The IRS can use any information that businesses submit voluntarily in support of both employment tax audits and criminal ERC fraud investigations. As a result, if the IRS requests additional information and then denies ERC-VDP eligibility, the IRS may already have the information it needs to pursue civil or criminal enforcement.

Businesses Filing Under the ERC-VDP Must Be Prepared to Pay What They Owe

If the IRS accepts a business’s ERC-VDP application, the business must be able to repay 80 percent of its total ERC credit (or credits). While businesses may be able to negotiate an installment agreement with the IRS, this also is not guaranteed. If paying the amount owed isn’t possible given a business’s current financial circumstances, then the business will need to consider other options. Business owners who need to consider alternatives will want to do so quickly, as failing to timely rectify an improper ERC filing can increase the risk of civil or criminal exposure.

Request a Confidential Consultation with Washington D.C. Tax Lawyer Kevin E. Thorn

If you need to know more about the options for addressing invalid ERC refunds without facing IRS scrutiny, we encourage you to contact us promptly. To request a confidential consultation with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033 or inquire online today.