Section 1. Purpose and Scope

The Internal Revenue Service (IRS) announces a second ERC Voluntary Disclosure Program for employers (participants) to resolve erroneous claims for credit or refund involving the Employee Retention Credit (ERC). The ERC is a refundable tax credit intended for businesses and tax-exempt organizations that continued paying employees during the COVID-19 pandemic if their operations were fully or partially suspended due to a government order, they experienced the required decline in gross receipts, or they were a recovery startup business during the relevant eligibility periods.

Since the enactment of legislation authorizing ERC claims, the IRS has had concerns about scams and potential fraud regarding such claims given false and misleading public advertisements and scams taking advantage of taxpayers. Those that filed for and erroneously received the ERC face enforcement action from the IRS and are subject to assessment and collection procedures. The IRS believes that it would prevail in litigation to recover credits or refunds of erroneous ERC claims and that the imposition of appropriate penalties and interest would be upheld by a court. The IRS is offering employers an opportunity to resolve their civil tax liabilities under this second ERC Voluntary Disclosure Program and avoid potential civil litigation, penalties, and interest.

In Announcement 2024-3, 2024-2 I.R.B. 364, the IRS announced the first ERC Voluntary Disclosure Program, which ended on March 22, 2024. More than 2,600 taxpayers applied to the first ERC Voluntary Disclosure Program to resolve their improper ERC claims and avoid civil penalties and unnecessary litigation. Participants included common

law employers who used a third-party payer to claim the ERC on their behalf. The first ERC Voluntary Disclosure Program included settlement of the ERC for purposes of a participant’s employment tax obligations by eliminating their eligibility for the ERC while allowing a participant to retain 20% of the claimed ERC amount. Because the ERC reduces the income tax expense for qualified wages under rules similar to section 280C of the Internal Revenue Code (Code), the first ERC Voluntary Disclosure Program also resolved the issue of the corresponding adjustment to income tax expense for participants.

This second ERC Voluntary Disclosure Program also includes the settlement of the ERC for purposes of a participant’s employment tax obligations by eliminating their eligibility for the ERC. However, participants in this second ERC Voluntary Disclosure Program are allowed to retain 15% of the claimed ERC amount. Participation in the second ERC Voluntary Disclosure Program is limited to ERC claims filed for the 2021 Tax Period(s) and includes common law employers who used a third-party payer to claim the ERC on their behalf. This second ERC Voluntary Disclosure Program also resolves the issue of the corresponding adjustment to income tax expense for participants. The second ERC Voluntary Disclosure Program, like the first, is intended to settle erroneous, yet non-willful ERC claims. Taxpayers subject to potential criminal liability should utilize the IRS Criminal Investigation Voluntary Disclosure Practice.