---
url: 'https://www.fmjlaw.com/did-your-organization-claim-an-employee-retention-credit-it-might-be-time-to-repay-it/'
title: Did Your Organization Claim An Employee Retention Credit? It Might Be Time To Repay It.
author:
  name: Adam
  url: 'https://www.fmjlaw.com/author/adam-brownfmjlaw-com/'
date: '2024-02-23T17:57:20+00:00'
modified: '2024-02-23T18:06:04+00:00'
type: post
summary: 'Learn more about the ERC Voluntary Repayment Program that is open until March 22, 2024.'
categories:
  - Article
  - Thought Leadership
tags:
  - Employee Retention Credit
  - ERC
  - tax
  - Voluntary Disclosure
published: true
---

# Did Your Organization Claim An Employee Retention Credit? It Might Be Time To Repay It.

The Internal Revenue Service has announced a Voluntary Disclosure Program for employers/participants to resolve erroneous claims for credit or refund involving the Employee Retention Credit (“ERC”).  In doing so, the IRS has opened the door for voluntary repayment for participants who may have filed an invalid ERC claim.  The details of the program are favorable to participants because any interest paid by the IRS to the participant stays with the participant, and the participant only has to pay back 80% of the total ERC.  However, the flip side is that if participants do not take advantage of the Voluntary Disclosure Program, the IRS may engage in audits, which scrutinize invalid ERC claims, potentially leading to IRS fees and penalties.

The ERC Voluntary Disclosure Program is open through **March 22, 2024**.  So, now is the time to act!

## Background

The ERC is a refundable tax credit intended for businesses and tax-exempt organizations that continued paying employees during the COVID-19 pandemic.  The ERC was available if a participant’s operations were fully or partially suspended due to a government order, if a participant experienced a required level of decline in gross receipts, or if a participant was a recovery startup business during the relevant eligibility periods.

The IRS is concerned about scams and potential fraud regarding ERC claims.  In addition, there were a number of scams and misleading advertising campaigns surrounding the ERC.  As such, participants that filed for and erroneously received the ERC could face enforcement action from the IRS and are subject to assessment and collection procedures. The IRS believes that it would prevail in any litigation to recover credits or refunds of erroneous ERC claims and that the imposition of appropriate penalties and interest would be upheld by a court.

However, the IRS is offering employers an opportunity to resolve their civil tax liabilities under this Voluntary Disclosure Program. This program will allow ERC participants to avoid potential civil litigation, penalties, and interest. This Voluntary Disclosure Program includes the settlement of the ERC for purposes of a participant’s employment tax obligations by eliminating their eligibility for the ERC while allowing a participant to retain 20% of the claimed ERC amount.  In addition, the Voluntary Disclosure Program also eliminates the need for any adjustment to income tax expense for participants, including employers who used a third-party payer to claim the ERC on their behalf.

## Who is Eligible for the Voluntary Disclosure Program?

Any participant that has claimed the ERC and has received a credit or refund is eligible to participate in this Voluntary Disclosure Program, provided that:

- The participant is not under criminal investigation, and they have not been notified that the IRS intends to commence a criminal investigation;

- The IRS has not received information from a third party alerting the IRS to the participant’s noncompliance, nor has the IRS acquired information directly related to the noncompliance from an enforcement action;

- The participant is not under an employment tax examination by the IRS for any tax period(s) for which the taxpayer is applying for this Voluntary Disclosure Program; and

- The participant has not previously received notice and demand for repayment of all or part of the claimed ERC.

NOTE: Participants that claimed the ERC using a third-party payer, which claimed the ERC for the participant on an employment tax return filed under the third-party payer’s own employer identification number (EIN) rather than the EIN of the participant, may participate in this Voluntary Disclosure Program.  However, the third-party payer must submit a special application on the participant’s behalf.

## Terms and Conditions

The ERC Voluntary Disclosure Program includes a number of terms and conditions.  Here are some of the key considerations:

- **Employment Tax Adjustments**: a participant is not eligible for, or entitled to, any ERC, including both the refundable and non-refundable portions, for the tax period(s) at issue.

- **Repayment**: a participant will pay back to the Department of the Treasury 80% of the claimed ERC, including both the refundable and non-refundable portions.

- **Interest**: a participant will not be required to repay any overpayment interest received. If a  participant repays in full 80% of the claimed ERC prior to executing the closing agreement (see below), there will be no underpayment interest applied. The IRS could approve a request for an installment agreement, but interest may apply from the agreement date.

- **Income Tax Effects**: the settlement eliminates a participant’s eligibility for and/or entitlement to all of the claimed ERC.  So, participants are not required to reduce wage expense with respect to any of the previously claimed ERC.

If they had not previously reduced wage expense by any of the claimed ERC, participants will not need to file amended returns or Administrative Adjustment Requests (“AARs”) to reduce wage expense.

- If they had previously reduced wage expense by any of the claimed ERC, participants should not reduce wage expense by any of the claimed ERC if they file an amended return or AAR adjusting the previous reduction to wage expense.

- Pursuant to the settlement, a participant would not recognize any income with respect to the resolution of the employment tax obligation by remittance of payment of only 80% of the claimed ERC, including both the refundable and non-refundable portions.

- **Preparer/Advisor Information**: if a return preparer or advisor assisted or advised the participant with any portion of the claim for credit or refund, the participant will provide the name, address, and phone number of the preparer(s) or advisor(s) who assisted with the claim for credit or refund and a description of services provided by the preparer or advisor.

- **Penalties**: The IRS will not assert civil penalties related to the underpayment of employment tax attributable to the claimed ERC against a participant of this Voluntary Disclosure Program under Announcement 2024-3 that remits full payment of 80% of the claimed ERC prior to executing the closing agreement.

## **Form 15434 – Due March 22, 2024**

Participants in this Voluntary Disclosure Program must notify the IRS of their election by completing and submitting [Form 15434](https://www.irs.gov/forms-pubs/about-form-15434).  This form is the application for the ERC Voluntary Disclosure Program, and it **must be submitted by March 22, 2024**.

Form 15434 and any required attachments are submitted electronically via the Document Upload Tool at irs.gov/DUT.   There will be a variety of information required, including:

- The taxpayer’s name, taxpayer identification number, current address, and daytime telephone number.

- Representative information, a Power of Attorney, Declaration of Representative, and so on.

- The tax period(s) for which the ERC was claimed, the full amount of the ERC claimed, and similar information;

If the tax period(s) for which the ERC was claimed include any tax period ending in 2020, additional forms will be required as well, including Form SS-10, Consent to Extend the Time to Assess Employment Taxes;

- If the ERC was claimed by a third-party payer on behalf of the participant, the third-party payer will have additional reporting requirements and forms to complete; and

- Name and contact information for any return preparers or advisors that assisted with the ERC claim, along with a description of services provided by the preparer or advisor.

Form 15434 walks participants through the information needed, and if helps participants calculate how much they will be required to pay to the Department of the Treasury under the terms of the ERC Voluntary Disclosure Program.

## Payments and Extensions

Payments will be submitted online through the Electronic Federal Tax Payment System (EFTPS). Payment should be made separately for each tax period upon submission of Form 15434.  Separate payments will help ensure that multiple tax periods are accurately tracked and credited to the correct tax period.

When possible, participants should make full payment of the amount owed under the Voluntary Disclosure Program.  In other words, participants should repay the full 80 percent of their ERC claim. 

Participants who are unable to make full payment of the 80 percent amount may be considered for an installment agreement.  Installments can be requested but are not guaranteed, and they are subject to IRS approval.

## Closing Agreement

Participants in the Voluntary Disclosure Program will need to execute a closing agreement.  After receiving the requested information, the IRS will prepare a closing agreement in accordance with the terms of the settlement. The IRS will mail the closing agreement to the participant, who must sign and return it to the IRS within 10 days of the date of mailing by the IRS. This is a quick turnaround time, so participants will need to be vigilant and make sure to sign the closing agreement right away.  The IRS may grant an extension for good cause to participants who request additional time within the ten-day period.

Full payment of the amounts owed under the Voluntary Disclosure Program should be made by the date the closing agreement is executed by the participant.  As discussed above, participants who are unable to remit full payment of the liabilities under this Voluntary Disclosure Program may be considered for an installment agreement, pending IRS approval.  It is not clear how that approval will be communicated, but a denial or payment instructions will likely come with the closing agreement.

## Other Considerations

The IRS has issued some limited guidance on other matters related to the Voluntary Disclosure Program.

- Denial of a participant’s request to participate in this Voluntary Disclosure Program is not subject to judicial review or administrative appeal.

- Execution of a closing agreement under this Voluntary Disclosure Program does not preclude the IRS from investigating any associated criminal conduct or recommending prosecution for violation of any criminal statute.

- Execution of a closing agreement also does not provide any immunity from prosecution.

This Voluntary Disclosure Program has opened the door to voluntary repayment for participants who may have filed an invalid ERC claim.  However, the March 22, 2024 deadline is rapidly approaching.  Although there will be a potentially large cost to employers initially, they do have the chance to retain 20% of their ERC amount, and the penalties could be costly if an employer does not participate in the Voluntary Repayment Program.  So, it is a good idea to consult with legal counsel and come up with a plan right away.  If you have questions about this information, please reach out to [Rob Tunheim](https://www.fmjlaw.com/professional/robert-tunheim/), [Pat Shriver](https://www.fmjlaw.com/professional/ernest-pat-shriver/), or the rest of our [Corporate and Business Practice Group](https://www.fmjlaw.com/practice-area/general-corporate-business/) at Fafinski Mark & Johnson.

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