On October 19, 2023, the Internal Revenue Service (IRS) announced a new withdrawal process to aid businesses who erroneously filed Employee Retention Credit (ERC) claims. The new process is part of the agency’s ongoing efforts to address the influx of ineligible ERC claims and protect small businesses from aggressive marketers and scammers who misled businesses about the tax credit program.
“The IRS is committed to helping small businesses and others caught up in this onslaught of Employee Retention Credit marketing,” IRS Commissioner Danny Werfel said in a press statement. “The aggressive marketing of these schemes has harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. We want to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and we encourage them to closely review the withdrawal option and the requirements. We continue to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.”
Employee Retention Credit
As discussed more fully in prior articles , the Employee Retention Credit is a refundable tax credit designed for businesses that continued paying employees during 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. Eligible businesses can claim a refundable tax credit against the employer share of Social Security tax equal to 70% of the qualified wages they pay to employees after December 31, 2020, through June 30, 2021.
Many marketers and scammers took advantage of the complex ERC rules to aggressively promote the credit and make false promises of tax savings to those who are ineligible. According to the IRS, it has received approximately 3.6 million claims for the credit over the course of the program. After determining that many are ineligible, the agency has stepped up its review ERC claims for compliance concerns.
On September 14, 2023, the IRS announced an immediate moratorium on processing new ERC claims. In addition to conducting audits of previously submitted claims, the agency is providing options for withdrawing or correcting previously filed claims.
Eligibility for ERC Claim Withdrawal
Employers are eligible for the ERC claim withdrawal process if they meet all of the following criteria:
You made the claim on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X).
You filed your adjusted return only to claim the ERC, and you made no other adjustments.
You want to withdraw the entire amount of your ERC claim.
The IRS has not paid your claim, or the IRS has paid your claim, but you haven’t cashed or deposited the refund check.
As emphasized by the IRS, employers who willfully filed a fraudulent ERC claim, or assisted or conspired in such conduct, are not exempt from potential criminal investigation and prosecution simply by withdrawing a fraudulent claim.
ERC Claim Withdrawal Procedure
The procedure to withdraw your ERC claim will depend on your particular circumstances. Below is a brief summary:
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. 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 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. The IRS has provided detailed instructions for withdrawing an ERC claim here.
How We Can Help
If you believe that you may have fallen victim to an ERC tax fraud scheme or otherwise filed an ineligible ERC claim, it is important to take prompt action. As Scarinci Hollenbeck, our dedicated tax attorneys can work with you to determine the best course of action to limit your potential liability.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Jeff Pittard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
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