What the IRS Voluntary Disclosure Program Means for You
In a recent announcement, the IRS has reopened the Voluntary Disclosure Program (VDP) for a limited time, offering businesses a crucial chance to rectify improper Employee Retention Credit (ERC) claims. This program is a key part of the IRS’s ongoing efforts to ensure compliance and mitigate the fallout from the aggressive marketing tactics that have led many businesses to mistakenly claim this complex credit.
What Does the Reopened Voluntary Disclosure Program Mean for Businesses?
The Employee Retention Credit Voluntary Disclosure Program is available until November 22, 2024, and provides a 15% discount on repayments for businesses that self-correct improper ERC claims. This is slightly reduced from the 20% discount offered during the program’s first run earlier this year. Participating in this program can help businesses avoid future audits, penalties, and interest, making it an essential consideration for those who suspect they may have claimed the ERC in error.
As part of its broader compliance work, the IRS will be sending up to 30,000 letters to businesses, targeting over $1 billion in potentially improper ERC claims. These letters serve as a stark reminder of the importance of ensuring ERC claims are accurate and in compliance with IRS guidelines.
The Importance of Acting Now
IRS Commissioner Danny Werfel emphasized the significance of participating in the reopened VDP, particularly for businesses that may have been misled by promoters. The IRS has identified that many of these improper claims stem from aggressive marketing practices, which have enticed well-meaning businesses into making erroneous claims.
“The limited reopening of the Voluntary Disclosure Program provides an opportunity for those with improper claims to come in ahead of IRS compliance work and get a discount on repayments,” said Werfel. “This is especially important given increasing IRS compliance actions involving bad claims, many of them are the result of aggressive marketing tactics to lure unsuspecting businesses into claiming the complex credit.”
The IRS is intensifying its efforts to address these issues, with thousands of audits underway and over 460 criminal cases initiated related to fraudulent ERC claims. Businesses that received improper payments are strongly encouraged to review their claims and consider the VDP as a proactive step to mitigate future risks.
Recapture Letters and Additional IRS Actions
In addition to reopening the VDP, the IRS has also begun sending thousands of recapture letters to businesses that received improper ERC claims for Tax Years 2020 and 2021. These letters notify recipients that the IRS is reversing or reclaiming the credit, and those businesses will be ineligible to participate in the VDP for the calendar quarter covered by the letter.
This latest round of letters is part of the IRS’s broader strategy to ensure compliance and prevent improper payments. In total, the IRS estimates that the disallowance of improper ERC claims will prevent up to $5 billion in incorrect payments.
What Should Businesses Do Next?
For businesses with pending, unpaid ERC claims, the IRS offers a separate ERC Claim Withdrawal Program. This allows businesses to withdraw unprocessed claims without incurring interest or penalties. To date, over 7,300 entities have utilized this program, withdrawing claims worth $677 million.
Given the increasing scrutiny and the potential consequences of non-compliance, it’s imperative for businesses to act quickly. We recommend consulting with a trusted tax professional to assess whether the VDP is the right path for your business. By doing so, you can avoid costly future compliance actions and ensure your business remains on solid footing.