The IRS is fulfilling its pledge to help businesses that received and deposited refunds after filing erroneous Employee Retention Credit (ERC) claims. It now has a voluntary disclosure program for such ERC claims.

The IRS announced a moratorium on processing these claims in September due to a proliferation of dubious claims promoted by so-called ERC mills. In October, the IRS announced a withdrawal program for employers that filed an ERC claim but have not yet received a refund. Also in October, the agency announced its intention to provide a relief program for businesses that want to pay back the money they received after filing erroneous ERC claims.

This voluntary disclosure program runs through March 22, 2024, which is also the deadline for applying. Employers will be able to repay 80 percent of the claim received free of penalties and interest. 

Employers that are unable to repay that much of the credit may be considered for an installment agreement, although they will have to pay penalties and interest. The IRS selected an 80 percent repayment because many of the ERC promoters charged a percentage fee that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.

The IRS also continues to urge employers with pending ERC claims to consider the separate withdrawal program that allows them to remove a pending ERC claim with no interest or penalty. That program applies to taxpayers that filed an ERC claim but have not yet received a refund. The IRS has already received more than $100 million in withdrawals as the agency continues intensifying audits and criminal investigation work in this area.

"The disclosure program provides a much-needed option for employers who were pulled into these claims and now realize they shouldn't have applied," said IRS Commissioner Danny Werfel in a statement. "From discussions we have had with taxpayers and tax professionals around the country, we understand that there are many employers eager to correct their error, but who remain concerned about their ability to pay back the portion of the credit that has been lost to the promoter that brought them into this mess. This new option, with an opportunity to get right with a lower financial cost, provides the relief these taxpayers requested. The new initiative will also help with our ongoing efforts to gather information on promoters who created this situation by aggressively pushing people to apply for the credit."

To apply, an employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay their full ERC, minus the 20 percent reduction allowed through the voluntary disclosure program. Employers that are not able to pay the amount in full will have the option to set up an installment agreement under certain conditions.

Employers that outsource their payroll to a third party must apply through that third party, which must file Form 15434.