Updated: Nov 8
In an ongoing initiative to safeguard small businesses and entities from fraudulent activities, the Internal Revenue Service (IRS) has unveiled a strategic withdrawal procedure designed to assist individuals who have filed for an Employee Retention Credit (ERC) with concerns about the claim’s accuracy. The creation of this withdrawal process aims to offer support to small business owners and others who may have been pressured or deceived by ERC marketers or promoters into making claims that do not meet the eligibility criteria.
This withdrawal alternative permits certain employers who have submitted an ERC claim but are yet to receive a refund to retract their application, thus sidestepping potential obligations for repayment, interest, and penalties. Those employers whose ERC claims are currently under review can choose to withdraw their claims, avoiding the risk of receiving an ineligible refund.
“The IRS reminds employers that if they request a withdrawal, it means they are asking the IRS not to process their entire adjusted employment tax return for the tax period that included the ERC claim. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.”
It is important to note that those who knowingly submitted fraudulent claims or were involved in such misconduct should be aware that withdrawing a fraudulent claim does not shield them from potential criminal investigations and legal action.
IRS Commissioner Danny Werfel expressed the IRS's dedication to assisting small businesses impacted by aggressive ERC marketing. He emphasized the importance of the withdrawal option, encouraging employers with pending claims to carefully review its requirements and consider consulting a trusted tax professional rather than a marketing company for guidance on this intricate tax credit.
The Withdrawl Process Follows The ERC Processing Halt
This introduction of the new withdrawal process follows the announcement on September 14, 2023, of an immediate halt in processing new ERC claims, a moratorium expected to last until at least the end of the year, was in response to an influx of ineligible ERC claims. While payments for claims submitted before September 14 will continue during the moratorium, the process may be delayed due to more thorough compliance reviews. Existing ERC claims will face extended processing times, potentially reaching 180 days or longer. Additionally, the IRS may request additional documentation to verify the legitimacy of claims.
Who Can Ask To Withdraw An ERC Claim?
According to IR-2023-193, employers can use the ERC claim withdrawal process if all the following apply:
They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
They filed the adjusted return only to claim the ERC and made no other adjustments.
They want to withdraw the entire amount of their ERC claim.
The IRS has not paid their claim, or the IRS has paid the claim, but they haven't cashed or deposited the refund check.
How To Withdraw An ERC Claim:
According to IR-2023-193, to take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyerc, summarized below.
Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer.
Taxpayers who filed their ERC claims themselves, haven't received, cashed, or deposited a refund check, and have not been notified their claim is under audit should fax withdrawal requests to the IRS. Taxpayers who cannot fax their withdrawal can mail their request, but this will take longer for the IRS to receive.
Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
Those who received a refund check but haven't cashed or deposited it can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.
Note: Taxpayers not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return.
The IRS Encourages Tax Payers To Seek Out A Trusted Advisor
The IRS strongly advises employers to consult with a reputable tax expert well-versed in the intricate ERC eligibility criteria, rather than turning to a promoter or marketer aiming for a substantial contingency fee. Trustworthy tax professionals may also offer guidance and support during the claim withdrawal process.
At Tax Credit Collective, we are frequently asked by CPAs to review their clients' potential ERC eligibility after an ERC mill has promised them eligibility in 6 or 7 quarters. In many cases, not only is there no eligibility in all 6-7 quarters, but there is no eligibility at all.
If your business is speaking to an ERC mill that is promising large dollars in an ERC refund but has not identified anything more than 'COVID impacts, social distancing, or supply chain disruption,' be extremely wary and consult a tax professional.
Tax Credit Collective