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IRS Launches New Program for Correcting Employee Retention Credit Claims: Essential Guide for Employers

IRS Introduces New Voluntary Disclosure Program for Erroneous Employee Retention Credit Claims

In a significant move to address the complexities and unintended consequences of the Employee Retention Credit (ERC) program, the Internal Revenue Service (IRS) has unveiled a new Voluntary Disclosure Program. This program is a pivotal response to the challenges and confusions faced by numerous employers who, influenced by aggressive marketing tactics and misleading information, erroneously claimed the ERC during the COVID-19 pandemic. The lucrative tax break also sparked a cottage industry of firms pushing employers to claim the credit wrongly. With a focus on rectifying these missteps, the IRS's program offers a structured pathway for employers to amend their tax records and mitigate potential financial and legal repercussions.

The IRS's new measures serve as a stark reminder to all employers regarding the compliance and integrity of tax law. This is not merely an advisory but a critical warning as the IRS steps up its enforcement actions. With over $100 million already reclaimed through withdrawals, the agency's resolve is clear, and these efforts are only intensifying. Employers who have submitted erroneous or excessive claims for the Employee Retention Credit (ERC) should take heed: the IRS has initiated the dispatch of up to 20,000 letters proposing tax adjustments specifically for recapturing incorrectly claimed credits for the tax year 2020, with the process for tax year 2021 still underway and additional notifications expected.

What is the IRS's New ERC Voluntary Disclosure Program?

The IRS's new ERC Voluntary Disclosure Program is a tailored solution designed for employers who have mistakenly claimed the ERC. This credit was initially introduced to support businesses that continued paying employees despite experiencing operational challenges due to the COVID-19 pandemic. However, the program's rollout saw a surge in aggressive and sometimes deceptive marketing strategies, leading some employers to file claims that may not align with the program's intended criteria. Under this new initiative, the IRS offers these employers a chance to voluntarily correct their tax filings by repaying 80% of the claimed ERC. This specific percentage was chosen with a keen understanding of the financial dynamics at play – many employers never received the total ERC amount due to fees charged by promoters, often taken as a percentage of the credit and deducted upfront. By setting the repayment at 80%, the IRS acknowledges these financial losses and provides a more manageable resolution pathway.

This program aims to streamline tax administration and offers participants relief from potential civil tax litigation, penalties, and accruing interest, effectively avoiding more severe consequences of non-compliance, such as the clandestine IRS-CI criminal tax investigations. Moreover, the program includes provisions for handling income tax adjustments for participants, ensuring a comprehensive resolution of tax obligations related to the ERC. The new disclosure program is part of a broader effort by the IRS to address the issue of aggressive ERC marketing and to collect crucial information on promoters who contributed to the spread of misinformation. With its implementation, the IRS aims to bring clarity and order to the ERC claims process, encouraging responsible tax practices among businesses and professionals.

At the Tax Law Offices of David W. Klasing, our team of dual-licensed Voluntary Disclosure Attorneys and CPAs is well-equipped to guide you through the nuanced landscape of the IRS's new ERC Voluntary Disclosure Program. We understand that many employers were led astray by aggressive and misleading marketing strategies. We also know many employers did not receive the full ERC amount due to considerable fees extracted by ERC promoters. Our approach is to provide comprehensive guidance, ensuring you navigate this new program effectively, aiming to bring you back into compliance while minimizing the risk of severe civil and criminal tax penalties and interest.

We will ensure that your being misled by the ERC promotors does not escalate to IRS-CI initiating a severe criminal tax investigation leading to criminal tax prosecution. With our depth of knowledge in various voluntary disclosure programs, we are adept at leveraging the intricacies of these initiatives to your advantage, offering a pathway to substantial compliance and peace of mind. Whether your concerns are personal or business-related, our award-winning professionals are prepared to provide the clarity and strategic insight needed to address your specific situation under this new ERC initiative. For personalized advice and detailed guidance on the ERC Voluntary Disclosure Program and other tax compliance matters, reach out to us at (800) 681-1295 or click here to schedule a reduced-rate initial consultation.

Am I Eligible to Qualify for the ERC Voluntary Disclosure Program?

Before proceeding, determining your eligibility for the new Employee Retention Credit (ERC) Voluntary Disclosure Program is crucial. To qualify for this opportunity to rectify your tax filings, several conditions must be met:

  1. No Criminal Tax Investigations: You're eligible if you are not currently under criminal tax investigation by the IRS for ERC-related issues, nor have you been notified of impending criminal investigations;
  2. No Third-Party Alerts or Enforcement Action Information: Your eligibility is intact if the IRS hasn't been tipped off about your non-compliance by someone else or hasn't already collected information about your situation through their enforcement actions;
  3. No Ongoing Employment Tax Examinations: If the IRS is not currently examining your employment taxes for the periods you claimed the ERC, you remain eligible, and
  4. No Prior Notice of ERC Repayment: You haven't received a prior notice demanding the repayment of the ERC or a portion thereof.

Can Third-Party Payers Submit the ERC Voluntary Disclosure Program Application on My Behalf?

If your claim for the Employee Retention Credit was facilitated by a third-party payer—such as an agent authorized under section 3504 of the Code, a professional employer organization (PEO), or a certified professional employer organization (CPEO)—and the claim was filed under their Employer Identification Number (EIN) instead of your business's EIN, you are still eligible for the Voluntary Disclosure Program. However, it's crucial to understand that in these circumstances, it is the responsibility of the third-party payer to submit the Voluntary Disclosure Program application on behalf of your business. This step is essential for ensuring that your application is processed correctly and reflects the nuanced relationship between your business and the third-party entity managing your employment tax matters.

If you believe you meet these criteria or are uncertain about your eligibility, seeking guidance from a knowledgeable tax professional can be invaluable. At the Tax Law Offices of David W. Klasing, dual-licensed Voluntary Disclosure Attorneys and CPAs are equipped to help clarify your eligibility status and assist with your application to the ERC Voluntary Disclosure Program. Creating a true partner in tax preparation and handling will benefit your immediate situation and long-term goals. Call (800) 681-1295 or schedule a reduced rate initial consultation online here to learn more today.

How Can I Apply for the ERC Voluntary Disclosure Program

To apply for the ERC Voluntary Disclosure Program, participants must complete certain steps and submit specific forms to the IRS. Here's a summary of the application procedures:

  1. Use Form 15434: Participants must complete Form 15434, the Application for Employee Retention Credit Voluntary Disclosure Program. This form must be submitted by March 22, 2024, before 11:59 pm local time;
  2. Submit Electronically: The completed Form 15434, along with any required attachments, should be submitted electronically through the IRS Document Upload Tool;
  3. Form Preparation and Requirements: The form must be prepared under the penalties of perjury and include your business's identifying information, details about the ERC claimed, and the tax period(s) it relates to;
  4. Additional Documentation: If you claimed the ERC for any tax period ending in 2020, a completed Form SS-10 is necessary. For third-party payer situations, include the relevant portions of Schedule R from Form 941 and
  5. Information on Tax Professionals: If a tax preparer or advisor assisted with the ERC claim, their contact details and a description of services provided should be included.

Meticulous attention to detail is crucial when preparing your ERC Voluntary Disclosure Program application. Navigating the complexities of tax law and ensuring accurate completion of all necessary forms can be daunting. This is where the Tax Law Offices of David W. Klasing can be a valuable asset. Our knowledgeable team is ready to assist you with each step of the application process, providing clarity on the program's requirements and helping to streamline your submission. Remember, the IRS voluntary disclosure programs come with a nearly guaranteed pass on criminal tax prosecution if the terms of the program are strictly complied with by the taxpayer. By working with our offices, you can secure peace of mind, knowing that experienced professionals are guiding you toward compliance with the program's guidelines.  Call (800) 681-1295 or schedule a reduced rate initial consultation online here to learn more about the ERC eligibility criteria today.

Key Terms and Application Process for the ERC Voluntary Disclosure Program

The ERC Voluntary Disclosure Program requires participants to adhere to several terms:

  1. Employment Tax Adjustments: Participants are deemed ineligible for any previously claimed ERC for specified tax periods;
  2. Repayment: 80% of both the refundable and non-refundable portions of the claimed ERC must be returned to the Treasury;
  3. Interest and Penalties: There's no requirement to repay overpayment interest. If 80% of the ERC is paid before the closing agreement, no underpayment interest will be charged;
  4. Income Tax Adjustments: Participants will not adjust wage expenses related to previously claimed ERC on their income taxes;
  5. Disclosure of Tax Preparer Information: If a tax preparer or advisor assisted with the claim, their details and a description of services must be provided;
  6. Penalties: Civil penalties for underpayment related to ERC claims will not be pursued if 80% repayment is made before the closing agreement;
  7. Closing Agreement: A closing agreement will be executed as outlined in the program's detailed guidance.

Payment Procedures and Closing Agreement

Participants must calculate their repayment using Form 15434 and submit payments through the EFTPS. Payments must be made individually for each tax period to ensure accurate processing. Full payment should coincide with the execution of the closing agreement.

The IRS will prepare a closing agreement in line with the settlement terms, and it must be signed and returned within a specified timeframe, typically ten days, with the possibility of an extension for good cause.

Additional Considerations

  • Denial of Participation: Requests for participation may be denied without the option for judicial review or appeal.
  • No Immunity from Prosecution: Entering a closing agreement does not protect against potential criminal investigations or prosecutions related to the ERC claims.

For those who may face difficulties fulfilling the full payment, installment agreements are considered case-by-case, subject to approval. It is essential for businesses to seek professional guidance when navigating the terms and processes of the ERC Voluntary Disclosure Program. For detailed explanations and assistance, consult with our tax professionals at the Tax Law Offices of David W. Klasing. Don't be intimidated by the new ERC program. Over the past 15 years, our firm has guided countless clients through domestic and offshore voluntary disclosure programs. We are committed to guiding you towards substantial federal and California state tax compliance, promptly addressing disclosure requirements to reduce your risk exposure, and assuring you are in good standing with the tax authorities.

Note: If you mistakenly claimed the ERC or were led astray by aggressive and misleading marketing strategies, self-reporting the employee retention credits through the ERC Voluntary Disclosure Program before the IRS has started an audit or criminal tax investigation/prosecution can ordinarily successfully bring you back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply. 

It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the ERC voluntary disclosure process. Only an Attorney has the Attorney-Client Privilege and Work Product Privileges. Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.

As uniquely qualified and extensively experienced Criminal Tax Defense Tax AttorneysKovelCPAs, and EAs, our firm provides a one-stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and net worthSee our Testimonials to see what our clients have to say about us!

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