IRS Announces Erroneous Employee Retention Credit Repayment Program

If you were among the scores of businesses hounded by companies promising every employer was entitled to receive up to $26,000 per employee for Employee Retention Credit (ERC) money from the government, pay close attention to this post. Claiming ERC eligibility under “supply chain issues” and “subject to a government shutdown” are coming under extreme scrutiny by the IRS for good reason. If you filed a claim under either of those pretenses, and you now know the funds you received were in error, you should take corrective steps now to return the money. However, not all of the money must be returned.

Many employers who continued to pay their employees during the pandemic were entitled to the employee retention credit, and we helped our eligible clients file the 941-X forms to receive those funds. Eligible employers who haven’t yet filed claims can still file for and receive proper ERC claims. You can read about eligibility for ERC funds here: IRS Notice 2021-49, and you can see the FAQs IRS issued on this topic here: IRS ERC FAQs

Due to the flood of what IRS suspects are erroneous ERC claims filed, they stopped processing all ERC claims in September 2023 in order to better scrutinize eligibility. To date, IRS has issued at least 20,000 letters to employers denying their ERC claims. Proper ERC claims should still be filed in order to get in line for processing, but businesses must understand additional scrutiny during processing is highly likely. Expect to be asked for documentation to support the claim for eligibility. Some S corporations are undergoing IRS reasonable compensation audits during the processing of their ERC claims.

If you are among those who filed an ERC claim, received the money, and have now learned you were not eligible to receive the funds, there’s good news. Yesterday, IRS announced a voluntary disclosure program that is actually quite generous. You only need to return 80% of the funds received in error, but you will not be subject to penalties that would otherwise apply to erroneous claims. However, you must apply by March 22, 2024 to be eligible for the discounted repayment/no penalty program.

For those who filed erroneous ERC claims not yet processed by IRS, you have the ability to withdraw your claim under another program announced earlier.

The IRS is directing much needed attention and enforcement to this initiative. You can read the full text of yesterday’s announcement here: Announcement 2024-3