IRS Opens Limited-Time ERC Voluntary Disclosure Program After Sending 20,000 Disallowance Letters to Businesses

The Internal Revenue Service (IRS) is pulling out all the stops to mitigate taxpayer losses under the pandemic-era Employee Retention Credit (ERC) program. With an estimated $2 trillion in fraudulent claims filed, the IRS is targeting both businesses that received fraudulent refunds and businesses that still have fraudulent ERC claims pending. As Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, all business owners who claimed the ERC need to ensure that they are making informed decisions in 2024:

“Initial Round” of ERC Disallowance Letters Targets Two Specific Issues

When the IRS sent more than 20,000 ERC disallowance letters in December 2023, it made clear that this “initial round” of letters only addressed a small subset of ERC-related violations. Specifically, the IRS sent letters to businesses that either:

• Were not in existence during the ERC eligibility period (March 13, 2020, through December 31, 2021); or,
• Did not pay any qualifying wages during the ERC eligibility period.

In its announcement, the IRS also made clear that additional rounds of disallowance letters will be forthcoming—and that it is simultaneously continuing its efforts to target ERC fraud with both IRS audits and criminal investigations.

All Business Owners Who Claimed the ERC Should Reassess Their Eligibility and Options

In light of the IRS’ ongoing efforts to target ERC fraud, all business owners who claimed the ERC should work with their tax counsel to reassess their businesses’ eligibility for the credit and examine the options they have available. Business owners who received a disallowance letter and disagree with the IRS’ determination can either respond to the letter with supporting documentation or file an appeal.

Those who haven’t received a disallowance letter (and who aren’t currently facing an IRS audit or investigation) potentially have a few options available. If they are confident in their businesses’ ERC claims, they can simply keep their refunds or wait to receive a refund from the IRS. If they aren’t confident in their businesses’ ERC claims, their options may include (but aren’t necessarily limited to):

• Filing for Withdrawal – Business owners who haven’t yet received improperly claimed ERC credits may be eligible to file for withdrawal.
• Submitting a Voluntary Disclosure – Business owners who have received improperly claimed ERC credits may be able to use the IRS’ ERC Voluntary Disclosure Program (ERC-VDP), which is currently open through March 22, 2024.

While these are options for mitigating business owners’ ERC-related risk, neither option guarantees immunity from prosecution. To ensure that they are making informed decisions, business owners should consult with their tax counsel before voluntarily submitting any information to the IRS.

Discuss Your Options with Virginia Tax Attorney Kevin E. Thorn

The tax attorneys at Thorn Law Group represent Virginia businesses and their owners in all ERC-related matters. To discuss your options with Virginia tax attorney Kevin E. Thorn, Managing Partner, please call 703-752-3752 or contact us confidentially online today.