The ERC Voluntary Disclosure Program aids businesses in rectifying potential misclaims of the Employee Retention Credit, promoting transparency and compliance with IRS regulations.
The IRS has recently announced a limited time reopening of the Employee Retention Credit (ERC) Voluntary Disclosure Program, creating a crucial opportunity for businesses that received ERC refunds for the 2021 tax period. This program enables eligible companies, not currently under investigation, to voluntarily return a portion of their ERC refunds, helping them sidestep penalties related to potential overclaims. Available until November 22, the ERC Voluntary Disclosure Program allows businesses to correct any inaccuracies in their payments at a 15% discount, thus avoiding potential audits, penalties, and interest.
What is ERC Voluntary Disclosure Program?
The ERC was created to assist businesses in retaining employees during the financial challenges of the COVID-19 pandemic. However, the complexities of eligibility and calculation have resulted in some companies mistakenly claiming more than they were entitled to. In response, the IRS has launched a second round of the Voluntary Disclosure Program to promote compliance and encourage businesses to self-correct these errors.
By voluntarily disclosing inaccuracies, businesses can mitigate penalties and avoid audits, ensuring adherence to the CARES Act guidelines.
What is the benefit?
The second ERC Voluntary Disclosure Program (VDP) offers businesses a valuable chance to correct past claims by allowing them to repay 85% of their ERC refunds, which is especially beneficial for those who may have received funds they weren’t entitled to. This enables companies to align their claims with IRS guidelines without incurring penalties or interest. Additionally, one of the program’s key advantages is that businesses do not need to amend their income tax returns to adjust wage expenses, thereby simplifying the process and reducing administrative burdens. Importantly, the 15% reduction in the refund is not considered taxable income, allowing businesses to make necessary corrections without the concern of incurring additional tax liabilities, leading to a cleaner resolution.
What are the steps for the business to navigate the ERC Voluntary Disclosure Program?
To effectively navigate the ERC Voluntary Disclosure Program, businesses should start by conducting a thorough review of their ERC claims for the 2021 tax year to identify any inaccuracies. Engaging a tax professional with expertise in ERC can provide valuable insights and guidance throughout the disclosure process. Additional information can be found in IRS Announcement 2024-30 and the associated news release, IR-2024-213, which outlines the details of the reopened program.
Conclusion
The reopening of the ERC Voluntary Disclosure Program presents a vital opportunity for businesses to address any inaccuracies in their ERC claims from the 2021 tax period. With the deadline approaching on November 22, companies have a unique chance to rectify potential overclaims without facing penalties or interest. By participating in this program, businesses can ensure compliance with IRS guidelines and alleviate financial burdens associated with past claims. Engaging with tax professionals and taking proactive steps to review and correct claims will be essential in navigating this process effectively, ultimately leading to a more secure financial future.
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