How to Apply for the ERC Voluntary Disclosure Program

The Employee Retention Credit (ERC) Voluntary Disclosure Program (VDP) is an initiative from the Internal Revenue Service (IRS). It provides a structured way for businesses that received an ERC refund they now believe they were not entitled to, to come forward and rectify the error. The program encourages compliance by offering benefits, such as waiving penalties and reducing the total amount that needs to be repaid. By participating, businesses can resolve incorrect ERC claims and avoid more significant consequences from a future IRS audit.

This program is a response to the high volume of improper ERC claims the IRS has identified, many of which were encouraged by aggressive promoters. The agency established this program to help non-compliant taxpayers return to good standing. It also serves to gather information on preparers who may have facilitated improper claims.

Determining Your Eligibility

To participate in the ERC Voluntary Disclosure Program, a business must meet several conditions. The program is only open for ERC claims made for tax periods in 2021. The business must have received the ERC payment as a cashed or deposited refund, or as a credit applied to a tax period, before August 15, 2024. The program is for taxpayers who now believe their correct ERC entitlement is zero.

A business is not eligible if the IRS has already initiated certain actions. The program is for voluntary compliance, meaning the taxpayer must come forward before being targeted for enforcement. A business cannot participate if:

• It is already under an IRS employment tax examination for the tax periods in question.
• The IRS has already notified the business of its intent to reverse the claimed credit to zero or issued a formal demand for repayment.
• The taxpayer is under a criminal investigation or has been notified by the IRS that one is intended.
• The IRS has already received information about the business’s non-compliance from a third party or another enforcement action.
• The business has already corrected its mistake by filing an amended return to reduce its ERC to zero.

Information and Forms for Your Application

Preparing your application requires gathering specific information and completing the designated form. The primary document is Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program. Applicants must use the August 2024 revision, available on the IRS website. Before filling out the form, you must collect business details like your Employer Identification Number (EIN), business name, address, and an authorized contact person.

The application involves calculating the repayment amount and identifying the tax periods. Applicants must repay 85% of the ERC they received for the 2021 tax periods. For example, if a business received a $100,000 ERC refund, its repayment is $85,000. This figure must be entered on Form 15434, where you will also list each 2021 tax quarter for which the incorrect claim was made and the credit amount received.

A component of the application is the disclosure of information about any advisors or tax preparers who assisted with the original ERC claim. The IRS requires applicants to provide the name, address, and phone number of these individuals or firms. This requirement is part of the agency’s effort to address promoters who marketed improper ERC claims, and failing to provide this information can jeopardize your application.

Your application package may need to include other consent forms. For applications covering the tax quarters ending March 31, 2021, or June 30, 2021, a completed Form SS-10 is required and is included in the Form 15434 package. If you need an installment agreement, you must also submit Form 2750. An authorized individual must sign and date Form 15434 to validate the submission.

Submitting Your Application and Next Steps

Once you have completed Form 15434, you must submit the application to the IRS through its electronic Document Upload Tool. This is the required channel for transmitting your application. You must submit the completed and signed application on or before the program’s deadline of 11:59 p.m. local time on November 22, 2024.

After submission, the IRS will review your application to ensure it is complete and that your business meets all eligibility criteria. If the IRS accepts your application, it will send you a closing agreement. This document formally confirms your participation in the program and will provide further instructions.

The closing agreement will outline the process for making the required repayment. To receive the full benefits of the program, such as the waiver of penalties and interest, you must pay the full 85% of the received credit before you sign the final closing agreement. For those unable to make the full payment at once, the IRS may offer an installment agreement; however, this may result in standard interest and penalties being applied.