IRS to End Employee Retention Credit Voluntary Disclosure Program on March 22nd

The Employee Retention Credit (ERC), a refundable tax credit instituted during the COVID-19 pandemic, became such a popular source of scam promotions and aggressive marketing throughout 2022 and 2023 that the IRS announced a moratorium on the processing of new claims starting September 14, 2023, amid concerns about the high numbers of improper claims. When properly claimed, the ERC – also referred to as the Employee Retention Tax Credit or ERTC -- is a credit designed for businesses that continued paying employees during the pandemic while their business operations were fully or partially suspended due to a government order or had a significant decline in gross receipts during the eligibility periods. As of mid-September 2023, the IRS reported it had received approximately 3.6 million claims over the course of the program. Although many claims were legitimate, others were the result of a barrage of aggressive marketing by scammers and promoters advertising ERC application services to unsuspecting businesses and pressuring or misleading them into filing improper claims. This resulted in businesses filing for and receiving the tax credits when they in fact did not actually qualify. In order to reduce the number of improper claims and encourage businesses that received an improper ERC payment to repay the credit, the IRS instituted a moratorium on new claims and created both an ERC claim withdrawal process and a special Voluntary Disclosure Program. The withdrawal process allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest, and penalties as sanctions for invalid claims. The Voluntary Disclosure Program, which sunsets on March 22, allows businesses that improperly claimed and received the ERC to voluntarily pay back the credit, minus 20%, but requires the businesses to cooperate with the IRS should it seek additional information as well as sign a closing agreement.

According to the IRS, proper claims for the ERC would be for qualified wages paid between March 13, 2020, and Dec. 31, 2021 where employers:
1. Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
2. Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
3. Qualified as a recovery startup business for the third or fourth quarters of 2021.

The IRS urges businesses who filed claims to review their eligibility and, if they determine the claims were in error, either withdraw them or apply for the Voluntary Disclosure Program. Willfully filing, assisting with, or conspiring to file a fraudulent ERC claim would not exempt a person or business from potential criminal investigation and prosecution.

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1. https://www.irs.gov/newsroom/irs-announces-withdrawal-process-for-employee-retention-credit-claims-special-initiative-aimed-at-helping-businesses-concerned-about-an-ineligible-claim-amid-aggressive-marketing-scams
2. Additional details can be found at https://www.irs.gov/newsroom/withdraw-an-employee-retention-credit-erc-claim
3. Additional details can be found at https://www.irs.gov/coronavirus/employee-retention-credit-voluntary-disclosure-program
4. Retrieved from https://www.irs.gov/newsroom/irs-alerts-businesses-tax-exempt-groups-of-warning-signs-for-misleading-employee-retention-scams-simple-steps-can-avoid-improperly-filing-claims