Read This BEFORE You File an Application Under the IRS' ERC Voluntary Disclosure Program

The Internal Revenue Service (IRS) launched a limited-time Employee Retention Credit Voluntary Disclosure Program (ERC-VDP) in January 2024. Businesses that improperly claimed the ERC currently have until March 22, 2024 to file applications under the program. Those that submit successful applications can avoid interest and penalties while repaying just 80 percent of their invalid refunds.

But, not all businesses are eligible under the ERC-VDP, and filing when a business is ineligible can be risky. As a result, it is critical that business owners make informed decisions with the help of an experienced Virginia tax attorney.

The ERC-VDP Eligibility Criteria

The IRS has outlined five basic eligibility criteria for businesses seeking protection under the ERC-VDP. To be eligible to file, a business must:

• Have received an ERC refund for which it was wholly ineligible;
• Not currently be the target of an employment tax audit or criminal tax investigation; and,
• Not have received an ERC disallowance letter from the IRS.

If a business meets these three basic requirements, then it is potentially eligible to file an application under the ERC-VDP. However, there is one major caveat: Protection under the ERC-VDP is not available to businesses that willfully filed fraudulent ERC claims. As the IRS made clear when launching the ERC-VDP, “if you willfully claimed an ERC that is fraudulent, or if you assisted or conspired in such conduct, applying to the ERC-VDP will not exempt you from potential criminal investigation and prosecution.”

The Risks of Filing Under the ERC-VDP When Ineligible

Businesses that file under the ERC-VDP when they are ineligible to do so can face significant risks. The IRS can use any information that businesses (or individuals) voluntarily submit in support of both civil audits and criminal investigations. As a result, if an ineligible business voluntarily discloses that it improperly claimed the ERC, this could trigger an IRS inquiry and the potential for civil or criminal penalties.

The Alternatives to Filing Under the ERC-VDP

With these risks in mind, business owners who have concerns about their ERC claims must carefully weigh their options before deciding how best to proceed. If filing under the ERC-VDP is not the best option, some of the alternatives that may be available include:

• Filing for ERC withdrawal;
• Filing an amended return; or,
• Disclosing a willful violation under the IRS' standard Voluntary Disclosure Program.

Under the right circumstances, filing under the ERC-VDP can mitigate businesses’ (and their owners’) risk while mitigating their liability to the IRS. But, when filing under the ERC-VDP isn’t the right choice, business owners must ensure that they carefully choose the best path forward.

Schedule a Consultation with Virginia Tax Attorney Kevin E. Thorn

If you have questions about the risks involved in filing an application under the IRS' ERC Voluntary Disclosure Program, we invite you to get in touch. To schedule a consultation with Virginia tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 703-752-3752 or contact us confidentially online today.