The IRS has recently launched the Second Employee Retention Credit Voluntary Disclosure Program (ERC-VDP), which presents a critical opportunity for businesses that may have inadvertently filed erroneous ERC claims for the 2021 tax period. This program, effective from August 15, 2024 to November 22, 2024, offers a path for businesses to correct these errors and avoid potentially severe penalties as the IRS ramps up its enforcement efforts against improper ERC claims.

Understanding the Second ERC-VDP

The Second ERC-VDP is different from the initial program, which closed in March 2024, offering a slightly different set of terms for repayment and eligibility. Under this new program, eligible businesses can repay 85% of the ERC amount they received. This is a more favorable rate compared to the first ERC-VDP, making it a viable option for those who missed the initial window.

It’s important to note that this program exclusively covers ERC claims for the 2021 tax periods. Businesses that need to rectify claims from 2020 are not eligible under this program and should seek alternative compliance options.

Key Eligibility Criteria

To qualify for the Second ERC-VDP, businesses must meet several stringent criteria:

• No Ongoing Criminal Investigations: The business should not be under or have been notified of any criminal investigation.
• No Prior Applications for the Same Tax Period: Businesses that applied for the First ERC-VDP for the same periods cannot participate.
• No Third-Party Compliance Reports: The IRS must not have received any third-party reports regarding the business’s noncompliance.
• No Ongoing Employment Tax Examination: The business should not be under employment tax examination for the periods in question.
• No ERC Recapture Notification: The business must not have received any notice indicating that their ERC is subject to recapture for the relevant tax periods.
• No Amended Returns for ERC: The business must not have already filed an amended return to remove the ERC.

Application Process

For those eligible and interested in applying, the process is straightforward but requires attention to detail. Businesses must complete Form 15434, the Application for Employee Retention Credit Voluntary Disclosure Program, and submit it via the IRS Document Upload Tool.

In cases where businesses cannot repay the required 85% upfront, they may apply for an installment agreement by submitting Form 433-B, Collection Information Statement for Businesses, alongside their application package. It’s also essential to include Form 2750, Waiver Extending Statutory Period for Assessment of Trust Fund Recovery Penalty, if applicable.

What Happens After Application Approval?

Once the IRS approves the application, businesses will receive a closing agreement. They are then required to repay 85% of the ERC received, which can be done online or via phone using the Electronic Federal Tax Payment System (EFTPS). Penalties and interest will apply under the standard terms for those opting for an installment agreement.

Deadline and Resources

All application packages for the Second ERC-VDP must be submitted by 11:59 p.m. local time on November 22, 2024. The IRS has provided a comprehensive set of FAQs on their website, detailing the nuances of the program, including eligibility, application steps, and the consequences of non-compliance.

At Cray Kaiser, we understand that navigating these programs can be complex and daunting. Our team is here to help you assess your situation, determine eligibility, and ensure that your application is accurate and timely. Don’t let an improper ERC claim result in unnecessary penalties—reach out to the experts at CK today to explore your options under the Second ERC-VDP.