What New Jersey Business Owners Need to Know About the IRS' ERC Voluntary Disclosure Program

The Internal Revenue Service (IRS) opened its much-anticipated Employee Retention Credit Voluntary Disclosure Program (ERC-VDP) in January 2024. The ERC-VDP is currently set to close on March 22, so eligible business owners only have a limited amount of time to decide whether to file. Here, New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, discusses some of the key factors business owners should consider when deciding whether to take advantage of the ERC-VDP.

Businesses Must Apply for Relief under the ERC-VDP (and Approval Is Not Guaranteed)

One of the main reasons to consider voluntary disclosure (as opposed to ERC withdrawal) is that businesses that are eligible for the ERC-VDP only have to repay 80 percent of their refunds. However, the ERC-VDP is similar to the ERC withdrawal program in that approval is not guaranteed.

If a business files under the ERC-VDP and the IRS rejects its application, it will still be liable for repayment of its ERC refund—plus interest and penalties. Additionally, if the IRS determines that the business willfully submitted a fraudulent ERC claim, “applying to the ERC-VDP will not exempt [the business] from potential criminal investigation and prosecution.”

This is critical—and it is by far the most important factor business owners need to consider when deciding whether to submit a voluntary disclosure. If a business voluntarily provides information about a fraudulent ERC claim and the IRS determines that the information constitutes evidence of willfulness, it can deny protection and initiate a criminal tax fraud investigation. These investigations can put businesses and their owners at risk for six-figure fines and federal imprisonment.

Not All Businesses Are Eligible for the ERC-VDP (and Filing When Ineligible Can Be Risky)

Just like ERC withdrawal, not all businesses are eligible to file under the ERC-VDP. As outlined by the IRS, the program’s eligibility criteria include:

• The business received a refund (or multiple refunds) under the ERC;
• The business’s owners “now think that [they] were entitled to $0 ERC;”
• The business is not currently the subject of an employment tax audit;
• The business is not currently the subject of a criminal tax fraud investigation; and,
• The business has not received an ERC disallowance letter from the IRS.

Additionally, implicit in the IRS' message regarding criminal investigation and prosecution is that businesses that willfully engaged in ERC fraud cannot take advantage of the ERC-VDP. As a result, if you have concerns that the IRS may deem your business’s fraudulent ERC filing to be willful, it will be critical that you discuss your options with an experienced New Jersey tax attorney.

Discuss Your Options with New Jersey Tax Attorney Kevin E. Thorn

New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, has extensive experience advising clients on ERC-related matters. If you have questions about filing under the ERC-VDP, he can help you make informed decisions. Please call 201-842-7696 or contact us confidentially online to arrange an initial consultation.