IRS Updates on the New ERC Voluntary Disclosure Program (VDP)
By Ashlee Hall, Esq., Director of Legal Services for Figure Financial, Inc.
More information on the new ERC Voluntary Disclosure Program (VDP) and the rights the IRS requires the taxpayer to give up in exchange. Taxpayers should never take the prospect of waiving rights to the government lightly or without seeking the advice of a tax advisor (preferably counsel), especially when it comes to the statute of limitations and disclosure of a financial position or the location of bank accounts. Let me explain…
⌛ Statute of Limitations
Taxpayers entering the program are required to sign and provide an extension of the SOL on 2020 ERC claims to April 15, 2025. This means the time for audit is extended for one year beyond the upcoming April 15, 2024, deadline, despite the taxpayer acting in good faith and requesting submission to the program. It does not appear the taxpayer’s consent is conditioned upon the IRS accepting the taxpayer’s application to the VDP program. Because this is a separate form, it seems like it could turn into a bait and switch if the taxpayer’s application is not approved. Visit this IRS FAQ pages for more information on the process: https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit-voluntary-disclosure-program#process
👩⚖️ The Right to Appeal
Participation in the VDP requires that you sign a closing statement. In doing so, a taxpayer waives the right to an appeal, which is a due process right.
💲 Disclosure of Financial Information
While those that the IRS accepts into the program will need to repay only 80% of the credit they received, employers unable to repay the required 80% of the credit in a lump sum may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, and all required supporting documentation. I have a feeling many business owners will find themselves in this category.
Based on my extensive experience in tax controversy and IRS collections, taxpayers should not provide this form or enter into a payment agreement with the IRS before consulting a tax advisor. Note that as part of an installment agreement, the taxpayer will also have to include any amounts owing on other tax periods, which could complicate things for business owners currently in a difficult financial position.
Finally, you are not eligible for the VDP for any tax period where you’re entitled to some ERC because the program is only for tax periods in which no ERC is allowed. If you think you are entitled to keep some of your ERC refund, it’s time to consult a tax advisor to help you properly substantiate what you are entitled to keep.
The deadline is March 22, 2024, in high tax season no less, so it’s best to sort out these details now. My advice? Do not waive any rights or voluntarily submit to IRS collections by providing the requisite Collection Information Statement without consulting a tax lawyer.