Employee Retention Credit – Voluntary Disclosure Program

 

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If you claimed and received the Employee Retention Credit (ERC), but you are ineligible and need to repay the ERC, this page will help you figure out if you can apply for the Employee Retention Credit Voluntary Disclosure Program (ERC-VDP) and how to do that. 

The ERC-VDP is open through March 22, 2024. The program requires you to: 

  • Voluntarily pay back the ERC, minus 20%,
  • Cooperate with any requests from the IRS for more information, and
  • Sign a closing agreement. 

If you need help checking your eligibility for the credit itself, use the Employee Retention Credit Eligibility Checklist and see the Frequently asked questions (FAQ) about the ERC. 

For additional information see the Frequently asked questions focused on ERC-VDP.

Work with a trusted tax professional if you need help or advice on this process or on the ERC.

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Advantages of the ERC Voluntary Disclosure Program

There are several benefits to using the ERC-VDP if you received the ERC but weren’t entitled to it and now want to pay the money back. If you apply to the ERC-VDP:

  • You need to repay only 80% of the ERC you received as a credit on your return or as a refund.
  • You don’t need to repay any interest you received on your ERC refund.
  • You don’t have to amend income tax returns to reduce wage expense.
  • The 20% reduction is not taxable as income.
  • The IRS will not charge penalties or interest on the claimed ERC amount if you pay it in full (claimed ERC minus 20%) by the time you return your signed closing agreement to IRS.
  • The IRS won’t examine ERC on your employment tax return for tax period(s) resolved within the terms of ERC-VDP.

Who can apply to the ERC Voluntary Disclosure Program

Businesses, tax-exempt organizations and government entities are eligible to apply for the ERC-VDP for each tax period that meets all of the below listed requirements.

  • Your ERC claimed on an employment tax return has been processed and paid as a refund, which you have cashed or deposited, or paid in the form of a credit applied to the tax period or another tax period.
  • You now think that you were entitled to $0 ERC.
  • You’re not under employment tax examination (audit) by the IRS.
  • You’re not under criminal investigation by the IRS.
  • The IRS has not reversed or notified you of intent to reverse your ERC to $0. For example, you received a letter or notice from the IRS disallowing your ERC.

If you used a third party payer to file your employment tax returns or claim your ERC, you can’t apply to the ERC-VDP yourself. You must contact the third party payer to apply.

See more details about ERC-VDP eligibility in the ERC-VDP FAQ question entitled Who is eligible for the ERC-VDP?. 

Please note that if you willfully claimed an ERC that is fraudulent, or if you assisted or conspired in such conduct, applying to the ERC-VDP will not exempt you from potential criminal investigation and prosecution.

If you’re not eligible to participate in ERC-VDP because your ERC hasn’t been paid, you may be able to use the ERC claim withdrawal process instead.

How to apply to ERC Voluntary Disclosure Program 

If you meet the eligibility rules for the ERC-VDP, complete an application package by:

Note: If you are unable to pay your full ERC-VDP amount, you can request the IRS to consider you for an installment agreement to pay over time. If you need to use this option, include Form 433-B, Collection Information Statement for Businesses, in your ERC-VDP application package along with all required documents to support your Form 433-B. Be sure Form 433-B is signed by an authorized person.  All requests for an installment agreement are subject to approval and will be considered on a case-by-case basis.

If you need to change an address or add a power of attorney, include the applicable forms in your package too. See the ERC-VDP FAQ question entitled What do I include in my application package, and how do I prepare it? for more details about these forms.

What happens next

The IRS will review your application package and verify your eligibility for the ERC-VDP. We will mail you a letter letting you know we received your application and whether we can proceed with your application or if it was rejected.

If we can proceed: 

After the IRS receives your signed closing agreement, we will adjust your account to reflect the eliminated ERC amount. Do not submit amended returns correcting your ERC.

The terms of the ERC-VDP closing agreement can’t be appealed. 

If your application is rejected, the letter will explain why and offer potential solutions. You may be able to correct the error and resubmit your ERC-VDP application package, or you may file an amended employment tax return.

Resources

 

Page Last Reviewed or Updated: 23-Mar-2024