The Internal Revenue Service (IRS) recently announced another round of its Voluntary Disclosure Program (VDP) for Employee Retention Credit (ERC) claims. VDP allows taxpayers with doubts about their ERC filing to voluntarily remit their refund, without penalties or interest, while retaining 15% of their credit.
Taxpayers are eligible as long as they have not yet been audited or received a disallowance letter from the IRS. The program is only in effect until November 22nd of this year. Before taxpayers file for VDP, they are encouraged to speak with a tax professional to determine their best course of action.
A Quick Recap
The ERC was instituted for the 2020 and 2021 tax years to support taxpayers who continued to keep employees on payroll during the COVID-19 pandemic. The large number of businesses filing for the credit, as well as issues with fraudulent claims, prompted the IRS to issue a processing moratorium for claims submitted after September of 2023.
The moratorium gave the IRS more time to scrutinize ERC claims and the result was the Service issuing tens of thousands of disallowance letters to businesses it determined did not qualify. Many of the disallowance letters did not notify taxpayers of their appeals rights, which can only be secured by filling a response to the letter within 30 days. If a taxpayer does not appeal the denial, their only remedy is to file a lawsuit against the IRS. The IRS gave business owners multiple opportunities and pathways to correct erroneous filings, including the original VDP program, which ended in March, and the still in effect withdrawal program for those that still have not received their refund.
The moratorium was partially lifted in June of this year to allow processing of claims made up to January 31, 2024. Since then, almost 60,000 more disallowance letters have been announced.
Future of VDP
Although no additional rounds of VDP are in the cards, the IRS has been ramping up ERC processing and using digital tools such as AI (artificial intelligence) to identify high- and low-risk cases. This indicates that the IRS is still very much invested in pursuing wrongful filings, which the agency has estimated to comprise a majority of claims. In fact, the IRS has determined that up to 90% of ERC claims have some sort of red flag.
Given the myriad twists and turns in the ERC saga, as well as the IRS’s continued scrutiny of the incentive, one thing has always been clear: if you have any concerns about your claim, an expert’s review is key to keeping your options open. Reach out to us at 713.513.8129 to take the first step and get ahead of any issues.
