IRS Offering a Withdrawal Process for Ineligible ERC Claims

Article Highlights:

• ERC Marketers and Promoters
• Potential Criminal Investigation and Prosecution
• About the ERC
• Who Can Withdraw an ERC Claim
• How to Withdraw a Questionable ERC Claim

The IRS has created a withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest. The IRS continues to warn taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers.

However, those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

The withdrawal option comes on the heels of the IRS announcing the imposition of a moratorium on processing new claims until at least the end of 2023, and that thousands of ERC claims already have been referred for audit. As part of their review procedure and to ensure a claim is legitimate, the IRS may ask for additional documentation from the taxpayer.

The ERC, an abbreviation of the Employee Retention Tax Credit or ERTC, is a refundable payroll tax credit designed for businesses that continued paying employees during specified periods of the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order, or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

The ERC is a complex tax credit that has been aggressively marketed by ERC marketers or promoters, and these schemes have harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. The IRS wants to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and they are encouraged to closely review the withdrawal option and the requirements. The IRS continues to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.

Who Can Ask to Withdraw an ERC Claim – 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 they 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 the taxpayer hasn’t cashed or deposited the refund check.

Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return.

How to Withdraw an ERC Claim – To take advantage of the claim withdrawal procedure, the special instructions at IRS.gov/withdrawmyERC should be carefully followed and are 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, depending on whether the taxpayer’s ERC claim was filed individually or batched with others.
• 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 using a computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device 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.

If you have submitted an ERC claim and are concerned about its validity and would like this office to review the claim, or need assistance with redrawing a claim, please contact us.