Millions of U.S. businesses and individuals took advantage of the government’s various forms of relief during the Covid-19 pandemic. Now, years later, the IRS has begun denying thousands of claims for relief, including under the Employee Retention Credit (“ERC”) program which helped businesses retain and pay employees during the pandemic. The IRS realized that many employers claimed ERCs because of aggressive marketing campaigns, yet not all employers that made claims qualified for ERC relief. In December 2023, the IRS mailed 20,000 denial letters to ERC claimants, denying relief and assessing additional taxes, interest, and penalties. More denial letters are likely on the way, along with intensifying audits and criminal investigations into erroneous ERC claims.

In the meantime, the IRS has provided several methods for employers who did not qualify for claimed ERCs to come into compliance with minimal consequences. Employers may apply for the ERC Voluntary Disclosure Program by March 22, 2024 to voluntarily repay the claim received at a rate of only 80%. To participate, the employer will need to file certain forms with the IRS, disclose the names of any tax return preparers or advisors who assisted with the ERC claim, and make arrangements to repay the reduced portion of the erroneous ERC. The employer must also meet certain qualifications. For example, an employer no longer qualifies for the ERC Voluntary Disclosure Program if the employer has already received an IRS notice and demand for payment of part or all of the ERC, or the employer is under a civil examination or criminal investigation. With the IRS initiating new examinations and issuing letter audits daily, the window for employers needing relief is quickly closing.

If the employer cannot or does not want to participate in the ERC Voluntary Disclosure Program, the employer may also withdraw pending ERC claims with no interest or penalty. The IRS has already received more than $100 million in withdrawals. Employers qualify for withdrawal if they filed an ERC claim but have not yet received a refund, or have received a check but have not yet deposited or cashed it.

Employers should take action now to reverse erroneous claims made for which the employer was ineligible. Gensburg Calandriello & Kanter, P.C. is well-versed in IRS voluntary disclosure applications and can assist any employers who question their eligibility for ERCs, evaluate the claim, determine the best course of action, and walk the employer through the selected resolution.


Sandra Mertens
[email protected]