ERC Voluntary Disclosure Program: Options for Correcting Your Claim

The IRS offered two ERC Voluntary Disclosure Programs that allowed businesses to repay improperly received credits at a reduced rate. While these programs have closed, understanding what they were and what options remain is important if you have concerns about your ERC claim.

The ERC Voluntary Disclosure Programs

The IRS offered two voluntary disclosure programs specifically for ERC:

• First VDP (March-November 2024): Allowed repayment of 80% of the ERC received, keeping 20% to cover preparer fees.
• Second VDP (August-November 2024): Required repayment of 85% of the ERC received, keeping 15%.
• Benefits: No penalties, no interest, and the IRS generally didn't pursue audits of participants.
• Participation: Thousands of businesses participated, returning billions of dollars in improperly claimed credits.

Why the Programs Closed

The IRS closed these programs because:

• Time-limited by design: The programs were always intended as temporary relief measures with fixed deadlines.
• Sufficient participation: The IRS achieved its goal of recovering significant improper payments voluntarily.
• Shift to enforcement: Resources are now focused on auditing and pursuing those who didn't come forward.

Options That Remain

Even with the VDP closed, you still have options if you're concerned about your claim:

• Claim withdrawal: If your claim is still unprocessed, you can withdraw it penalty-free. This is often the best option for pending claims.
• Amended return: You can file an amended Form 941-X to reduce or eliminate your ERC claim before the IRS contacts you.
• Voluntary repayment: You can simply repay the credit you received, though you may still owe interest.
• Wait for audit: If you believe you legitimately qualified, you can prepare your documentation and wait to defend your claim.
• Negotiate during audit: If audited, you may be able to negotiate a settlement for less than full disallowance plus penalties.

Comparing Your Options

Here's how the remaining options compare:

• Withdrawal (best for unprocessed claims): Completely penalty-free, no interest, claim treated as never filed. Only works if you haven't received the refund.
• Voluntary repayment: You pay back the credit, possibly with interest. May still face audit questions but shows good faith.
• Wait and defend: If you legitimately qualified, waiting may be best. But prepare your documentation now.

Will There Be Another VDP?

The IRS has not announced plans for another voluntary disclosure program, but:

• No guarantees: There's no indication the IRS will offer another ERC-specific VDP.
• General VDP exists: The IRS has a general voluntary disclosure program, but it doesn't offer the same favorable terms as the ERC-specific programs did.
• Enforcement focus: The IRS is now focused on audits and enforcement rather than voluntary programs.