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ERC – The Gift that Keeps on Giving!

The Employee Retention Credit (ERC) is the gift that keeps on giving, or, in this case, could be the gift that you give back. If you’ve been following along, there’s been no shortage of ERC drama. First, you weren’t eligible if you took a PPP loan. Then, it was a free-for-all when you were told that if COVID made you feel uncomfortable, you were eligible. Then, the IRS gave us some more guidelines (along with some veiled threats); the threats then became less veiled. Now, we have our second get-out-of-jail-free card – that’s right, the second.

We wrote about the first get-out-of-jail-free card back in October when the IRS announced a withdrawal process; that update wasn’t terribly newsworthy, though, as it was very limited in scope and only applied to applicants who had not yet received their refund. This latest development, however, could prove very interesting.

The Latest ERC Update

Amid the holiday season, the IRS released Announcement 2024-3, which established a Voluntary Disclosure Program (VDA) for those who erroneously received an employee retention credit. Here are the highlights:

  • Eligibility – Unless you are currently on the IRS’s radar, pretty much anyone who has received a credit or refund is eligible.
  • Terms – You pay back 80% of the credit or refund received. You do not have to pay back any interest you received on the refund.
  • Procedure – File IRS Form 15434 on or before March 22, 2024.

One important item to note is that participation in this program means that there is no need to include any ERC amount in income in any tax year. If you already did, you could amend to change that. A second note is that participation in this program means the IRS will not come after you for any civil penalties (or the ERC itself).

The biggest item of interest (other than the fact that they’re finally doing this) without a doubt is the 80%. Why 80% you say? Well, if you truly did get scammed, you probably paid the scammer a 20% contingent fee. As far as I can tell, there are two goals of this program. First, the IRS wants to get as much money back as possible. If companies simply can’t afford to pay back all of it, they’re much more apt to roll the dice. If they only have to pay back 80% (which one could argue is the amount that they pocketed), I think the compliance rate will be much higher. If they get even just 20% compliance at 80%, that’s a lot more money than 10% compliance paying back 100%. The second goal is to find the ERC mills that caused this problem in the first place. Buried in the details is the fact that, as part of the VDA, you must disclose the name, address, and phone number of any preparer or advisor who assisted you with the ERC claim.

ERC Next Steps

So, what to do now? If you have doubts about your eligibility, you should seriously consider this program. I can’t help but think that this is the final warning before the IRS comes after fraudulent claims with everything it’s got. There’s been a ton of fraud over the past few years, and the IRS knows it. If you choose to not participate and used a questionable advisor or approach, there’s a very good chance you will eventually be on the IRS’s radar.

Please do not hesitate to contact us if you have questions about the information outlined above; our seasoned and experienced tax professionals are always here to help. You can also learn more about our Tax services by visiting our website.

About the Author

Mark Heath

Mark is a Partner with McKonly & Asbury. Serving as Director of Tax Services, he brings a wealth of experience in federal, state, and international income as well as franchise tax issues for both publicly and privately held corporatio… Read more

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