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TAX ALERT: EMPLOYEE RETENTION CREDIT VOLUNTARY DISCLOSURE PROGRAM EXPIRES
NOVEMBER 22, 2024



October 31, 2024 Voluntary Disclosure Program

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act of 2020
established the employee retention credit (“ERC”) which provides a refundable
payroll tax credit to eligible employers designed to assist in retaining and
paying employees during the COVID-19 pandemic. Subsequent legislation extended
the availability of the ERC into calendar year 2021.

An employer could qualify for the ERC if it experienced a significant decline in
revenue during 2020 or the first three quarters of 2021, sustained a full or
partial suspension of business operations (including those attributable to
supply chain disruptions) attributable to shutdown orders issued by an
appropriate governmental authority during 2020 or the first three quarters of
2021, or qualified as a recovery start-up business for the third or fourth
quarter of 2021. While qualifying for the first criteria was largely an
objective determination, meeting the second and third criteria is a subjective
determination based on the facts and circumstances for each employer.

The IRS issued considerable guidance outlining the requirements to qualify for
the ERC based on a government shutdown, supply chain disruption, or as a
recovery start-up business. However, many employers improperly applied those
methodologies based on a misunderstanding of the requirements or relied on a
third-party adviser that used those methodologies to justify claims that do not
satisfy the requirements.



While the ERC was a valuable tool designed to help businesses recover from the
impact of the COVID pandemic, the emergence of unscrupulous ERC advisers
resulted in increased scrutiny of all ERC claims, including legitimate claims
filed by eligible employers. In order to combat a potentially significant volume
of invalid or fraudulent ERC claims, the IRS increased its enforcement actions,
including the implementation of procedures to identify ineligible employers and
invalid claims.

Employers whose ERC claims are found to be invalid or erroneous will be required
to repay the amount of the erroneous claim. Those employers may also be required
to pay  civil penalties and interest. Employers or third-party advisers that are
found to have willfully filed or to have assisted or conspired in filing a
fraudulent ERC claim may also be subject to potential criminal investigation and
prosecution.


VOLUNTARY DISCLOSURE PROGRAM

As part of its overall program to administer the ERC program, the IRS opened a
second ERC Voluntary Disclosure Program (“VDP”) that employers may utilize to
resolve invalid or erroneous ERC claims. The current program is similar to the
original program offered by the IRS that expired on March 22, 2024.

Employers that improperly received ERC benefits may repay 85% of those benefits
without the imposition of any additional penalties or interest if that amount is
repaid when a closing agreement with the IRS is finalized. The 15% retained ERC
benefit  will not be subject to federal income tax. However, if an employer is
determined to have willfully filed or assisted or conspired to file a fraudulent
claim, the Voluntary Disclosure Program will not exempt that employer from
potential criminal action.

The current Voluntary Disclosure Program applies only to ERC claims for 2021
employment tax periods and does not include claims for any 2020 tax period. In
order to qualify for the Voluntary Disclosure Program for a 2021 employment tax
period, an employer must meet the following requirements for that period:

 * The employer received (or credited to another tax period) a refund of ERC
   claimed on a 2021 employment tax return but subsequently determined that
   refund should have been $0,
 * The employer is not under an employment tax examination by the IRS,
 * The employer is not under criminal investigation by the IRS,
 * The employer has not received a letter or notice from the IRS indicating its
   intent to reverse all or part of an ERC claim.

The deadline for an eligible employer to submit an application under the current
Voluntary Disclosure Program is 11:59 p.m. local time on November 22, 2024.  The
Voluntary Disclosure Program is not available to employers that filed 2021 ERC
claims that have not been paid. However, an employer that believes a pending
unpaid claim is invalid may withdraw the full amount of the claim by filing an
amended payroll tax report for the period for which the original claim was
filed.

If you filed an ERC claim for a 2021 employment tax period that you believe may
be invalid, please feel free to contact your Whitley Penn LLP tax advisor to
discuss your concerns and determine a potential course of action.

This tax alert is designed only to provide general information regarding its
subject matter and should not be construed as tax, accounting, or legal advice
to any specific person or entity. The statutes, authority, or other law
discussed or cited in the alert are subject to change and Whitley Penn assumes
no obligation to update the reader of any changes. Any advice or opinion
regarding the application of the subject matter for a specific person or entity
should be provided by a competent professional tax advisor based on the
application of the appropriate law and authority to the facts and circumstances
applicable to that person.


CONTACT US

Stay tuned for additional alerts in the future. In the interim, please contact
your Whitley Penn
tax advisor if you have any questions or require any additional information.

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