Kostelanetz partner Christopher M. Ferguson was quoted in a Forbes article about the end of the Employee Retention Credit (ERC) voluntary disclosure program (the ERC-VDP). The ERC-VDP, which ended on November 22, 2024, was an IRS initiative that permitted businesses to return refunds they erroneously received on questionable ERC claims in exchange for being able to retain 15 percent of the refund and avoid civil penalties.
The ERC is a refundable tax credit passed as part of the CARES Act that rewarded businesses for retaining workers during the pandemic. The IRS believes that the ERC program has been beset by fraud and abuse.
Chris outlined a list of red flags identified by the IRS that might suggest an ERC claim could be questionable. As the article noted, “The items on the list aren’t equal, explains Ferguson, noting that some are more egregious than others. Some—like double-dipping with PPP funds—are black and white, while others may be more gray.”
To promote voluntary compliance and try to recover erroneously paid refunds without resorting to enforcement actions, the IRS offered two iterations of voluntary disclosure programs.
The first iteration of this voluntary disclosure program ended on March 22, 2024. The second iteration recently ended November 22, 2024; both offered discounts on the repayment of ERC credits for tax periods in 2021. Those eligible for the most recent voluntary disclosure program included businesses that did not participate in the first one, were not under criminal investigation, and did not already file an amended tax return to eliminate prior ERC claims.
Neither voluntary disclosure program offered protection from criminal prosecution, as Chris notes in the article. Chris explains that businesses may still avail themselves of the IRS’s traditional voluntary disclosure practice, which affords less civil incentives but greater criminal protection than the ERC-VDP.
Chris also wrote a LinkedIn Pulse article detailing the advantages of participating in the voluntary disclosure program and who was eligible, which you can read here.
In his LinkedIn piece, Chris notes another option for businesses that may not have been eligible for the voluntary disclosure program:
“ERC claimants with a pending ERC claim, or who have received a refund but are reluctant to deposit the check, are not eligible for the ERC-VDP. Instead, they may participate in the ERC withdrawal program. Unlike the ERC-VDP, the withdrawal program does not expire on November 22, 2024. Like the ERC-VDP program, however, the withdrawal program does not provide protection from criminal exposure for willfully fraudulent ERC claims. Taxpayers in that situation should consult a professional about their options.”
Forbes subscribers can read that article in full here.
Chris has over two decades of experience as a litigator, concentrating his practice on white-collar criminal defense as well as civil tax controversies, criminal tax fraud, and other regulatory enforcement matters. Chris also has extensive experience handling complex civil litigation and internal investigations.
