Your Guide to the IRS's ERC Voluntary Disclosure Program
The IRS has launched a groundbreaking initiative aimed at helping businesses correct and repay questionable Employee Retention Credit (ERC) claims. In this blog post, we delve into the details of the ERC Voluntary Disclosure Program—a unique opportunity for businesses to rectify their claims and avoid penalties. Act swiftly, as the program is open only until March 22, 2024.
Understanding the Background
The IRS initiated this program as part of its ongoing efforts to combat aggressive marketing practices surrounding the ERC. Some businesses were misled into making erroneous claims, and the IRS is keen on setting things right. This voluntary disclosure program is designed to provide relief to eligible businesses while ensuring tax compliance.
Previous Initiatives
Earlier this year, the IRS began mailing letters to thousands of taxpayers, notifying them that their ERC claims had been disallowed. These letters were sent to businesses that did not meet the basic eligibility criteria. To further assist businesses, a withdrawal option was introduced in October, allowing certain employers to withdraw their ERC claims, avoiding future repayment, interest, and penalties. This option has already seen millions in ERC claims being withdrawn.
In September, the IRS implemented a moratorium on processing new ERC claims, set to last until early 2024. No new claims will be reviewed or processed during this period.
Key Details of the Disclosure Program
Interested businesses must apply for the ERC Voluntary Disclosure Program by March 22, 2024. If accepted, they will need to repay only 80% of the credit they received. The IRS will not charge interest or penalties on these repayments. Any interest paid on the ERC refund claim does not need to be repaid.
For businesses unable to repay the credit in full, there may be an option for an installment agreement on a case-by-case basis. However, entering into such an agreement without repaying the required 80% upfront will result in penalties and interest.
The IRS chose the 80% repayment figure to accommodate businesses that were lured into making questionable claims by unscrupulous preparers who often took fees of at least 20%, leaving businesses without the full credit.
Disclosure Requirements
As part of the application process, businesses must provide the IRS with information about advisors or tax preparers who advised or assisted with their ERC claims. This information will be used to identify patterns of abuse and ensure promoters are held accountable.
Eligibility
Businesses that have already received the ERC but aren't entitled to it can apply for the program if they meet certain criteria:
- Not under criminal investigation
- Not under an IRS employment tax examination
- Not received an IRS notice and demand for repayment of the ERC
- The IRS has not received noncompliance information from a third party
How to Apply
To apply, businesses must complete Form 15434, "Application for Employee Retention Credit Voluntary Disclosure Program," available on IRS.gov. The form must be submitted using the IRS Document Upload Tool. Employers who outsource payroll must have the third party file Form 15434.
Next Steps
Once accepted into the program, an IRS employee will review the application and answer any questions. If approved, businesses will receive a closing agreement and will need to repay 80% of the ERC received using the Electronic Federal Tax Payment System (EFTPS). For those unable to pay in full, an installment agreement may be an option, but it comes with penalties and interest.
Ongoing Efforts
The ERC Voluntary Disclosure Program is just one step in the IRS's ongoing efforts to combat ERC fraud. The IRS is intensifying audits and investigations into dubious claims and urging businesses to review ERC requirements and consult with tax professionals to ensure compliance.
Conclusion
The ERC Voluntary Disclosure Program offers a valuable opportunity for businesses to correct their claims, avoid penalties, and promote tax compliance. Take action before March 22, 2024, to benefit from this initiative and protect your financial interests.
Stay tuned for more updates on tax regulations and compliance. www.proponotaxresolution.com
Navigating the Employee Retention Credit (ERC) Minefield
In 2020, as a part of the CARES Act, the U.S. government introduced the Employee Retention Credit (ERC), a vital tax relief measure to counter the economic impact of the COVID-19 pandemic. Aimed at supporting businesses that kept paying their employees during this challenging period, the ERC offered a refundable tax credit on wages paid between March 12, 2020, and January 1, 2022. Businesses were eligible to claim this credit on their quarterly employment tax returns, providing much-needed financial relief during a time of unprecedented hardship.
However, the well-intentioned ERC soon became a target for abuse. Misled often by aggressive marketing tactics, some businesses filed claims without fully meeting the eligibility criteria, leading to a substantial number of improper claims. Recognizing this issue, the IRS implemented a moratorium on processing new ERC claims from September 14, 2023, allowing them time to conduct thorough compliance reviews and protect legitimate businesses from the consequences of fraudulent claims.
The IRS's response didn't stop there. More than 20,000 letters have been sent out to notify taxpayers of disallowed ERC claims, focusing particularly on entities that either didn't exist or lacked paid employees during the eligibility period. This action is part of a larger effort to maintain the integrity of the ERC and includes programs like special withdrawal options for pending claims and a voluntary disclosure program for those who wish to rectify their situation and avoid future IRS action.
Amidst this intensified scrutiny, many taxpayers and business owners find themselves overwhelmed and uncertain. This is where Propono steps in, offering expert tax resolution and representation services. Our team is well-versed in the complexities of the ERC and is ready to assist you, whether you're disputing a claim, seeking guidance on compliance, or facing an audit.
If you've inadvertently filed an inaccurate ERC claim or are unsure about your claim's accuracy, it's crucial to take proactive steps. Propono can assist you in reviewing your situation and, if necessary, in withdrawing your claim before it's processed by the IRS. This proactive step can prevent future repayments, interest, and penalties, offering a vital lifeline for businesses that may have been misled into filing ineligible claims.
For example, ABC Tech, a small software development company, faced significant financial challenges during the COVID-19 pandemic. With a reduction in client contracts and revenue, the company looked for ways to support its workforce. ABC Tech's owner heard about the Employee Retention Credit and believed it could provide the needed relief. In 2021, ABC Tech filed for the ERC, claiming a credit of $50,000. The claim was based on the wages paid to its ten employees during the pandemic. The company included this credit in its quarterly employment tax return, expecting a refund from the IRS.
However, upon review, the IRS denied the ERC claim made by ABC Tech. The IRS investigation found that although ABC Tech did experience a decrease in business, it did not meet the required threshold of a "significant decline in gross receipts" as outlined in the ERC guidelines. Additionally, the IRS discovered that ABC Tech had received a Paycheck Protection Program (PPP) loan and used it to cover the same payroll costs for which they claimed the ERC. Since double-dipping into both relief programs for the same expenses was not permitted, ABC Tech's ERC claim was deemed ineligible.
As a result of the denial, ABC Tech was required to repay the $50,000 credit it had claimed, along with potential penalties and interest. The company also faced additional scrutiny from the IRS for future tax filings.
This example highlights the importance of understanding the specific requirements and guidelines of the ERC program and ensuring that all criteria are met before making a claim. It also underscores the need for accurate record-keeping and possibly seeking advice from a tax professional when navigating these complex tax relief programs.
The landscape of ERC claims has become more challenging than ever, but with Propono's guidance and representation, you can navigate these challenges confidently. We're here to ensure that your business's financial health is safeguarded and that your tax obligations are managed successfully.
For anyone navigating these turbulent waters, remember: the right advice and representation are key to staying compliant and managing your tax obligations effectively. Trust in Propono's expertise to guide you through these complex times. Contact us today for expert assistance with your ERC and other tax-related concerns.
Divorce and Taxes
Divorce is sticky and never fun.
In a complex Virginia divorce case, a stay-at-home mother faced the daunting challenge of understanding her husband's business finances. Without this knowledge, she was at a clear disadvantage. To remedy this, she sought the expertise of Cheryl B. Hyder, a forensic accountant. Hyder's intervention was a game-changer. She not only unearthed vital financial information but also demystified it for the layperson. Her skill in making sense of intricate financial records became a key factor in achieving a fair division of assets in court.
Cheryl B. Hyder's journey into forensic accounting is rooted in her passion for clarifying financial complexities. With a solid background in tax, she shifted her focus to forensic accounting in the 1990s. Hyder's knack for problem-solving goes beyond the financial realm, as evidenced by her volunteer work with a pit bull rescue organization, showcasing her diverse set of interests and commitment to community service.
Forensic accountants like Hyder are increasingly essential in various sectors, not just in personal disputes. With over 62,000 Certified Fraud Examiners worldwide, a number that has grown by 18% since 2018, their expertise is sought after in a range of scenarios. They engage in tasks such as business valuation, tracking assets in offshore accounts, dissecting financial frauds, and even tracing cryptocurrency transactions linked to these frauds. Their skills are indispensable in unraveling the web of complex financial transactions.
High-profile divorce cases often highlight the significance of forensic accountants. In the notable divorce of actor Kevin Costner, forensic accountants played a pivotal role. They meticulously analyzed detailed financial records, from lavish expenditures to concealed assets, providing insights that heavily influenced court decisions regarding child support and legal fees.
The meticulous nature of forensic accounting involves scrutinizing every financial detail, no matter how minor. This thorough approach is vital not only in divorce cases but also in corporate disputes and fraud investigations. By identifying specific spending patterns, forensic accountants can uncover hidden income streams or provide evidence of fraudulent activities.
A striking example of this was seen in a Florida divorce case, where forensic accountants uncovered unauthorized transfers from an inherited estate, demonstrating their critical role in exposing financial malfeasance. Such detailed investigations can transform legal disputes, with the findings often pushing parties towards settlement or arbitration.
The growing complexity of financial transactions in legal disputes, especially in cases involving businesses or international assets, underscores the increasing importance of forensic accountants. Their ability to decode financial intricacies is not merely a mechanism for legal resolution but often serves as a catalyst for reaching equitable settlements. In a world where financial dealings are ever more intricate, the role of forensic accountants in providing clarity and fairness cannot be overstated.