7 Signs Business Owners Should Consider ERC Voluntary Disclosure or Withdrawal (According to the IRS)

The IRS’ Employee Retention Credit Voluntary Disclosure Program (ERC VDP) closes on March 22, 2024. With the filing deadline less than a month away, the IRS is encouraging all business owners to carefully review their ERC filings and determine whether a voluntary disclosure (or withdrawal) is warranted. As New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, while businesses that received improper refunds are allowed to repay just 80% of their refunds under the ERC VDP, those that haven’t yet received their refunds must withdraw their claims entirely.

This, of course, assumes that the business filed for the ERC improperly. Recently, the IRS identified seven “warning signs” that this may be the case.

When Should Business Owners File Under the ERC VDP or File for ERC Withdrawal?

When should business owners consider filing under the ERC VDP or withdrawing their ERC claims? Here are seven non-exclusive signs that remedial action may be necessary according to the IRS:

1. Claiming the ERC for Too Many Quarters

According to the IRS, a common issue involves businesses claiming the ERC for all quarters during which it was available in 2020 and 2021. Businesses can only claim the credit for the quarters in which they qualified under the then-current eligibility criteria.

2. Claiming the ERC for Entire Quarters

Along with claiming the ERC for too many quarters, the IRS is also targeting businesses that claimed the ERC for an entire quarter when they only experienced a full or partial suspension of operations for a portion of the relevant three-month calendar period.

3. Claiming the ERC Based on Supply Chain Disruptions

As the IRS explains, “[a] supply chain disruption by itself doesn’t qualify an employer for ERC.” As a result, claims based solely on these disruptions are invalid.

4. Claiming the ERC Without a Government Order Affecting Operations

To qualify for the ERC, a business must have experienced a full or partial suspension of operations due to a government order during the pandemic. Government orders do not include guidance, recommendations and other statements that don’t mandate compliance.

5. Improperly Calculating the ERC

Businesses claiming the ERC were required to calculate their credits separately for each calendar quarter. As the eligibility criteria and calculation methods changed throughout 2020 and 2021, businesses that didn’t recalculate each quarter almost certainly filed invalid claims.

6. Improperly Claiming the ERC

Businesses that didn’t pay employees (or didn’t exist) for periods during which they claimed the ERC are at high risk of facing IRS scrutiny if they don’t file under the ERC VDP or file for withdrawal.

7. Falling for an ERC Promotion Scheme  

Finally, the IRS notes that business owners who filed at the behest of promoters should review their ERC claims with the help of legal counsel. Fraudulent ERC promotion schemes were pervasive during and after the pandemic, and falling for a promotion scheme does not protect businesses (and their owners) from enforcement.

Request a Consultation with New Jersey Tax Attorney Kevin E. Thorn

If you need help deciding whether to file under the ERC VDP or file for ERC withdrawal, we encourage you to schedule a confidential consultation at Thorn Law Group. To request an appointment with Managing Partner and New Jersey tax attorney Kevin E. Thorn, please call 201-842-7696 or contact us confidentially online today.