IRS Encourages Businesses to File Under ERC VDP Before the March 22 Deadline

Posted in Offshore Account Update on February 29, 2024 | Share

In a recent News Release, the Internal Revenue Service (IRS) strongly encouraged business owners to file under the Employee Retention Credit Voluntary Disclosure Program (ERC VDP) before the March 22 deadline if they improperly claimed the ERC during or after the COVID-19 pandemic. The ERC VDP provides a limited-time opportunity for eligible businesses to resolve their invalid ERC claims by repaying 80 percent of their refund. But, as Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, recently discussed, filing under the ERC VDP will be risky for some businesses. As a result, informed decision-making is key, and business owners should seek advice before the March 22 deadline expires.

Filing under the ERC VDP is an option for businesses that have received invalid refunds under the Employee Retention Credit program. Businesses that filed but have not yet received refunds are not eligible to file under the ERC VDP but will need to consider using the IRS’ voluntary withdrawal process instead.

7 “Warning Signs” for Invalid ERC Claims According to the IRS

Regardless of whether a business has received its ERC refund, now is the time to assess whether remedial action is necessary. Similar to the ERC VDP, the voluntary withdrawal process for invalid ERC claims is only available for a limited time. Once these programs expire, the IRS will be aggressively targeting businesses that failed to remedy their fraudulent ERC filings.

Along with encouraging businesses to take advantage of these limited-time opportunities, the IRS also identified seven “warning signs” for invalid ERC claims in its News Release:

  • Too Many Quarters –  Claiming the ERC for quarters during which the business was ineligible to receive the credit.
  • No Qualifying Government Order – Claiming the ERC when the business was not subject to a government order that fully or partially suspended its operations.
  • Incorrect Calculations – Claiming the ERC for non-qualifying employees or non-qualifying wages, including improperly claiming the credit for employees or wages that were eligible in one quarter but not another.
  • Citing Supply Chain Issues – Claiming the ERC based on supply chain disruptions (as the IRS notes, “[q]ualifying for [the] ERC based on a supply chain disruption is very uncommon”).
  • Claiming an Entire Quarter – Claiming the ERC for an entire calendar quarter when the business only experienced a full or partial suspension of operations for a portion of the quarter.
  • Non-Payment or Non-Existence – Claiming the ERC when a business wasn’t paying wages to its employees or when the business wasn’t in existence.
  • ERC Promoter Scams – Claiming the ERC based on representations from a fraudulent promoter—which is not an excuse for non-compliance.

Business owners who have concerns about these issues (or any other issues related to their ERC claims) should consult with a Washington D.C. tax lawyer promptly.

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

If you need to know more about filing under the ERC VDP or withdrawing an invalid ERC claim, we encourage you to contact us promptly. To schedule a confidential consultation with Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033 or send us a message online today.

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