The IRS announced that it is reopening the Voluntary Disclosure Program to help businesses fix incorrect Employee Retention Credit (ERC) claims for a limited time, ending on Nov. 22

The ERC is a refundable tax credit for businesses that continued to pay employees while shut down due to the COVID-19 pandemic or that had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. The IRS repeatedly warned businesses and tax-exempt groups to be wary of companies and individuals that falsely tell them that they are eligible for the credit. But those repeated warnings  did not deter many unscrupulous promoters from falsely advertising their ability to obtain the credit for almost anybody.

On Dec. 22, 2023, the IRS announced the first Voluntary Disclosure Program “to help businesses who want to pay back the money they received after filing ERC claims in error.” That program, which allowed businesses to repay 80 percent of the claim received, ran through March 22, 2024

The new Voluntary Disclosure Program will allow businesses a chance to correct improper payments at a 15 percent discount and avoid future audits, penalties and interest. The IRS reported that during the first disclosure program that ended in March, there were more than 2,600 applications from ERC recipients that disclosed $1.09 billion worth of credits.

The IRS also announced that it plans to mail up to 30,000 new letters to reverse or recapture potentially more than $1 billion in improper ERC claims. Thousands more mailings on additional questionable payments will be made in the fall.

“The limited reopening of the Voluntary Disclosure Program provides an opportunity for those with improper claims to come in ahead of IRS compliance work and get a discount on repayments,” said IRS Commissioner Danny Werfel. “This is especially important given increasing IRS compliance actions involving bad claims, many of them are the result of aggressive marketing tactics to lure unsuspecting businesses into claiming the complex credit. This provides a final window of opportunity for those misled businesses to make adjustments and avoid future compliance action by the IRS.”

“The push by promoters flooded the IRS with questionable ERC claims, which clogged our systems and slowed work,” he added. “We recognize well-meaning businesses are caught up in this, and we are taking important steps to help them. This includes reopening the Voluntary Disclosure Program as well as getting more payments out to qualifying businesses.”

On Aug. 8, the IRS announced that it was accelerating Employee Retention Credit (ERC) payments as well as continuing to work on denials of improper ERC claims. In addition, it announced that it was shifting the end date of its moratorium on processing new claims from Sept. 14, 2023, to Jan. 31, 2024.

In recent weeks, the IRS has sent out 28,000 disallowance letters to businesses whose pending claims showed a high risk of being incorrect. The IRS estimates that these disallowances will prevent up to $5 billion in improper payments. The IRS has also identified 50,000 valid ERC claims and is quickly moving them into the pipeline for payment processing in coming weeks. These payments are part of a low-risk group of claims.

The special reopening of the ERC Voluntary Disclosure Program  through Nov. 22 is intended to help businesses that received questionable payments self-correct and repay the credit they received after filing ERC claims in error. The IRS is urging businesses with claims that show warning sign indicators to review eligibility requirements and talk to a trusted tax professional to see if the disclosure program is a good option for them.

The disclosure program protects businesses from more costly future compliance action. The second VDP offers a 15 percent discount for businesses repaying credits for tax periods in 2021, a slightly reduced rate from the first program’s 20 percent discount that ended in March.

The IRS is recommending that businesses act soon to resolve incorrect claims and avoid potential future issues such as audits, full repayment, penalties and interest. Full details are available in another IRS news release.

In addition, the IRS is continuing to urge employers with pending, unpaid ERC claims to consider a separate ERC Claim Withdrawal Program, which would allow them to remove a pending ERC claim—one that the IRS has not processed yet. Employers can withdraw the claim and pay no interest or penalty. Already, the claim withdrawal process for those with unprocessed ERC claims has led to more than 7,300 entities withdrawing $677 million.

The IRS continues analyzing ERC claims, intensifying audits and pursing promoter and criminal investigations. Beyond the disallowance letters, current initiatives results include the following:

• Criminal investigations: As of July 1, IRS Criminal Investigation has initiated 460 criminal cases, with potentially fraudulent claims worth nearly $7 billion. In all, 37 investigations have resulted in federal charges so far, with 17 investigations resulting in convictions and nine sentencings with an average sentence of 20 months.

• Promoter investigations: The IRS is gathering information about suspected abusive tax promoters and preparers improperly promoting the ability to claim the ERC. The IRS’s Office of Promoter Investigations has received hundreds of referrals from internal and external sources. The IRS will continue civil and criminal enforcement efforts of these unscrupulous promoters and preparers.

• Audits: The IRS has thousands of ERC claims currently under audit.