On August 15, 2024, the IRS announced the launch of the Second Employee Retention Voluntary Disclosure Program (ERC-VDP), to run from August 15, 2024, through November 22, 2024. The Second ERC-VDP assists businesses that want to pay back the money they received after filing Employee Retention Credit (ERC) claims in error for 2021 tax periods. The IRS is offering this measure as it
continues to intensify compliance work related to invalid ERC claims as a result of aggressive marketing schemes (IR 2024-212; IR 2024-213; Ann. 2024-30, 2024-36 IRB).
IRS Commissioner Danny Werfel explained that the limited Second ERC-VDP will provide "an opportunity for those with improper claims to come in ahead of IRS compliance work and get a discount on repayments."
The Second ERC-VDP differs from the First ERC-VDP that closed March 22, 2024, and will allow eligible taxpayers to repay 85% of the claim received, which is less than what was offered for the First ERC-VDP. Further, the Second ERC-VDP will only apply to ERC claims for 2021 tax periods. The Second ERC-VDP may not be used to disclose and repay ERC claims from 2020 tax periods.
The Second ERC-VDP will permit the repayment of 85% of the claim received. If the IRS paid interest on the employer's ERC refund claim, the employer does not need to repay that interest. Employers who are unable to repay the required 85% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of Form 433-B , Collection Information Statement for Businesses and supporting documentation.
Eligible participants who timely repay will not be charged interest or penalties. However, participants who cannot pay the 85% of the credit at the time of signing the closing agreement will be required to pay penalties and interest connected to a payment arrangement such as an installment agreement.
To qualify for this program:
The participant must not be under criminal investigation or notified they will be subject to a criminal investigation
The participant must not have applied for First ERC-VDP for the same tax periods. The IRS notes it continues to process First ERV-VDP applications.
The IRS must not have received any third-party information about the participant's noncompliance.
The participant must not be under an employment tax examination for any tax period(s) that they are applying for the Second ERC-VDP.
The participant hasn't been notified that the ERC is subject to recapture for the tax period(s) pertaining to the Second ERC-VDP.
The participant has not received a notice and demand for repayment for all or part of the claimed ERC.
The participant hasn't already filed an amended return to eliminate the ERC.
Interested employers must complete Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, and submit it through the IRS Document Upload Tool. Employers are expected to repay their full ERC, minus the 15% reduction allowed through the VDP. Under certain conditions, employers who aren't able to pay the amount in full will have the option to set up an installment agreement. Taxpayers that need to request an installment agreement, must include Form 433-B, Collection Information Statement for Businesses with their package. Also, Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty must also be submitted since the taxpayer may be subject to the trust fund recovery penalty (TFRP). All potentially responsible persons for the business entity must submit their own Form 2750 with your second
Finally, if a taxpayer needs to change an address or add a power of attorney, these applicable forms must also be included in the Second ERC-VDP application package. ERC claims filed by a third-party. Employers that outsource payroll to collect and pay employment taxes using the third party's Employer Identification Number, cannot apply. The third-party provider must file Form 15434.
If approved, the IRS will mail the employer a closing agreement. The employer must then repay 85% of the ERC received, either online or by phone, using EFTPS or if eligible, may enter into an installment agreement with the IRS. Penalties and interest will apply under a standard installment agreement.
The Second ERC-VDP application package must be submitted by 11:59 p.m. local time on Nov. 22, 2024.
A new webpage provides information on the advantages of participating in the Second ERC-VDP, who can apply, how to apply, and next steps.
The IRS has released a set of FAQs for the Second ERC-VDP that provides detailed information on eligibility, the program process, calculating and paying the amount due, applying for installment agreements, and amending employment tax returns to account for the ERC repayment. The IRS will continue to maintain the FAQs pertaining to the First ERC-VDP that closed on March 22, 2024.
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