Irs Announces Voluntary Disclosure Program for Employee Retention Tax Credits | Jackson Walker

On December 21, 2023, the Internal Revenue Service (IRS) issued Announcement 2024-3, setting forth the parameters of a voluntary disclosure program (the “Program”) for taxpayers to resolve Employee Retention Tax Credit (ERTC) claims that have resulted in the taxpayer receiving an erroneous credit or refund.^[1] For those following the news reports, the IRS has identified rampant fraud (not all claims, of course) in the ERTC; the IRS is offering, through the Program, some especially generous alternatives for taxpayers who may be having second thoughts on having claimed the ERTC. Taxpayers must act quickly; participation in the Program is available only for a limited period of time, as described below.

Background on ERTC and the Program

The ERTC is a refundable tax credit intended for businesses and tax-exempt organizations that continued paying employees during the COVID-19 pandemic if their operations were fully or partially suspended due to a government order, they experienced the required decline in gross receipts, or they were a recovery startup business during the relevant periods. The eligibility requirements, applicable time periods, and dollar limitations for claiming the ERTC have changed several times due to the passage of a series of federal bills, resulting in a complex set of rules for calculating and claiming the ERTC. Additional information regarding certain recent IRS guidance on the ERTC is available here.

Aggressive ERTC promoters made false and misleading public advertisements regarding the eligibility requirements for the ERTC, leading to IRS concerns that fraudulent claims are being made and that taxpayers may be exploited. In the absence of the Program, taxpayers that filed for and erroneously received the ERTC may face enforcement action from the IRS for recovery of the ERTC (along with potentially material penalties and interest) through assessment and collection procedures. The IRS adopted the Program to staunch the bleeding–offering taxpayers the ability to resolve their ERTC civil tax liabilities, avoid potential civil litigation, and avoid penalties and interest.

Eligibility for the Program

Taxpayers that have claimed the ERTC and received a credit or refund are eligible to participate in the Program if:

1. The taxpayer is not under criminal investigation and they have not been notified that the IRS intends to commence a criminal investigation;
2. The IRS has not received information from a third party alerting the IRS to the taxpayer’s noncompliance, nor has the IRS acquired information directly related to the noncompliance from an enforcement action;
3. The taxpayer is not under an employment tax examination by the IRS for any tax period(s) for which the taxpayer is applying for the Program; and
4. The taxpayer has not previously received notice and demand for repayment of all or part of the claimed ERTC.