IRS Tax News

IR-2024-296, Nov. 21, 2024

WASHINGTON — With a Nov. 22 deadline rapidly approaching for the second Voluntary Disclosure Program, the Internal Revenue Service urgently recommends that businesses review Employee Retention Credit guidelines and resolve incorrect claims soon to avoid future issues.

And to help payroll companies and other third-party payers assist more clients with resolving incorrect ERC claims, the IRS announced today the extension of the deadline for third-party payers through Dec. 31, 2024, to use the consolidated claim process. Originally, the third-party option was set to close Nov. 22.

Amid high-pressure marketing that misled many ineligible businesses into filing claims for this pandemic-era tax credit, the IRS opened special programs to help businesses voluntarily resolve incorrect claims.

“Tax professionals and IRS staff are hearing repeatedly that many businesses very much believe they qualify for the credit when, in fact, they don’t,” said IRS Commissioner Danny Werfel. “We urge businesses with pending claims to reexamine their claims to see if they were misled and use the options to proactively resolve their issues. They should listen to trusted tax professionals, not promoters.”

The claim withdrawal program and consolidated claim program remain open, and the IRS strongly recommends that business learn about the warning signs of incorrect claims, which outline tactics that unscrupulous promoters have used and why their points are wrong. Eligibility for this credit depends on very specific facts and circumstances.

The second ERC Voluntary Disclosure Program allows businesses that received the credit after filing a claim in error to apply for this program to repay the credit, minus 15%, for tax periods in 2021. Generally, businesses that enter the program don’t have to pay penalties or interest and don’t have to repay interest received from the IRS on an ERC refund. The second ERC Voluntary Disclosure Program ends Nov. 22.

During the first Voluntary Disclosure Program more than 2,600 applications disclosed $1.9 billion worth of credits.

Programs remain open for businesses whose claims haven’t been processed

The Claim Withdrawal Program remains open for businesses who need to ask the IRS not to process an ERC claim for any tax period that hasn’t been paid yet. The IRS will treat the claim as though the taxpayer never filed it. No interest or penalties will apply.

With today’s announcement, the IRS extended its similar program for third-party payers through Dec. 31, 2024. The consolidated claim process for third-party payers was set to close Nov. 22.

Third-party payers report and pay clients’ federal employment taxes under the third-party payer’s Employer Identification Number. They handle clients’ payroll and tax reporting duties. Some of these third-party payers filed ERC claims for multiple employers. If a third-party payer’s client has since determined it is ineligible for the ERC and wants to resolve their claim, it is the third-party payer that needs to correct it.

This consolidated claim process lets a third-party payer that filed a prior claim with multiple clients “withdraw” only some clients while maintaining the claims of the qualifying clients.

“Thousands of businesses came forward during the first disclosure program,” Werfel said. “Thousands more have withdrawn incorrect claims. Businesses that enter these programs can avoid penalties and interest they’d face if the IRS takes compliance actions later. The IRS reminds businesses involved with incorrect claims that the risk can sharply escalate over time.”

Even if the terms Employee Retention Credit and Employee Retention Tax Credit don’t sound familiar, businesses should still review their records. Some promoters called the credit a grant, business stimulus payment, government relief or other names.

The IRS is continuing to process valid ERC claims as quickly as possible, while guarding against improper payments driven by unscrupulous marketers.

Businesses that can’t pay in full can still apply to Voluntary Disclosure Program

Taxpayers who can’t pay the full amount of ERC, minus 15%, by the time they return their signed closing agreement can still apply to the ERC Voluntary Disclosure Program and request an Installment Agreement to pay over time. Businesses who need an installment plan should request it by Nov. 22. See Payment options for accepted second ERC-VDP applications for details.

Under an Installment Agreement, the business must make monthly payments. Interest and penalties that normally apply to a tax liability will apply starting from the ERC Voluntary Disclosure Program closing agreement date. This date, however, is better for businesses than an agreement outside of the ERC Voluntary Disclosure Program where the penalties and interest date back to when the business received the incorrect ERC.

Tax laws require the IRS to use a variety of collection tools to recapture incorrect ERC payments or credits. The IRS will continue tax compliance activities on ERC claims to protect taxpayers and enforce the tax law. If the IRS finds an incorrect ERC claim after these programs end, the agency can disallow unpaid claims or require repayment with penalties and interest.

Resources for more information

The IRS has resources to help businesses or a trusted tax professional check ERC eligibility, learn the signs of incorrect claims, get information about the VDP or Claim Withdrawal Program, or report a promoter.

• Warning signs ERC claims may be incorrect outlines tactics that unscrupulous promoters have used and why their points are wrong.
• Frequently asked questions about the Employee Retention Credit include eligibility rules, definitions, examples and more.
• Frequently asked questions about the second ERC Voluntary Disclosure Program
• Frequently asked questions about the ERC claim withdrawal process
• Report a promoter or advisor outside of the VDP application with Form 14242, Report Suspected Abusive Tax Promotions or Preparers PDF.