The Employee Retention Credit (ERC) is the gift that keeps on giving, or, in this case, could be the gift you give back. If you have been following along, there has been no shortage of ERC drama. First, you were not eligible if you took a PPP loan. Then, eligibility was a free-for-all if COVID made you feel uncomfortable. Subsequently, the IRS issued guidelines (with some veiled threats) that became less veiled. Now, we have our second get-out-of-jail-free card - that is right, the second!
The Latest ERC Update
Amid the holiday season, the IRS released Announcement 2024-3, establishing a Voluntary Disclosure Program (VDA) for those who erroneously received an employee retention credit. Here are the highlights:
Eligibility – Virtually anyone who has received a credit or refund is eligible unless currently under the scrutiny of the IRS.
Terms – You pay back 80 percent 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 crucial item to note is participation in this program means there is no need to include any ERC amount in your income in any tax year. If you already did, you could amend it. A second note is participation in this program means the IRS will not come after you for civil penalties or the ERC itself.
Aside from the fact that they are finally doing this, the most noteworthy item of interest is undoubtedly the 80 percent factor. Why 80 percent? If you fell victim to a scam, you probably paid the scammer a 20 percent contingent fee. The program appears to have two primary goals.
The IRS wants to get as much money back as possible. If a company cannot afford to pay back all of it, they are much more apt to roll the dice. If the company only has to pay back 80 percent, which one could argue is the amount they pocketed, the compliance rate will be much higher. If the IRS gets just 20 percent compliance at 80 percent, that is more money than 10 percent compliance if paying back at 100 percent.
The program seeks to find the ERC mills that caused this problem in the first place. Buried in the details is the requirement, as part of the VDA, that you must disclose the name, address, and phone number of any preparer or advisor who assisted you with the ERC claim.