Certain employers concerned about the accuracy of an employee retention credit (ERC) claim they filed now have a way to withdraw their claim and avoid future repayment, interest, and penalties.
The IRS on Thursday released details of a special process for eligible employers to withdraw ERC claims that have been filed but for which the employer has not received a refund, including information on which employers are eligible to withdraw claims and the claim withdrawal procedure. Claims that are withdrawn will be treated as if they were never filed.
However, those who willfully filed a fraudulent claim, or those who assisted or conspired in the filing of such claims, will still be subject to possible criminal investigation and prosecution, the IRS said.
“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 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. … We continue to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.”
When it announced a moratorium on the processing of new ERC claims last month, which is in effect at least through the end of 2023, the IRS also said it would provide a plan for withdrawing claims.
In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS is working hundreds of criminal cases, and thousands of ERC claims have been referred for audit.
Payouts for claims submitted before Sept. 14, the date the IRS announced the moratorium on processing claims, will continue during the moratorium period but at a slower pace due to more detailed compliance reviews.
With stricter compliance reviews in place, existing ERC claims will go from a standard processing goal of 90 days to 180 days — and much longer if the claim faces further review or audit. The IRS may seek additional documentation from the taxpayer to ensure the claim is legitimate.
The IRS is also working on guidance to help employers who claimed the ERC and have already received the payment. More details will be available later this fall.
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, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund; 943-X, Adjusted Employer’s Annual Federal Tax Return for Agricultural Employees or Claim for Refund; 944-X, Adjusted Employer’s Annual Federal Tax Return or Claim for Refund; or CT-1X, Adjusted Employer’s Annual Railroad Retirement Tax Return or Claim for Refund).
- 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 employer has not 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.
Withdrawing a claim
Instructions on how to withdraw a claim are available at IRS.gov/withdrawmyERC. The IRS has set up a fax line to receive withdrawal requests from taxpayers who filed ERC claims themselves. 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.
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 have not 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.
Taxpayers will get a letter from the IRS about whether their withdrawal request was accepted or rejected. The approved request is not effective until the taxpayer has the acceptance letter from the IRS.
If the IRS accepts the withdrawal, the taxpayer may need to amend their income tax return.
Tax professionals and others can join an ERC webinar on Nov. 2 to learn more about withdrawing or correctly previously filed claims.
The IRS released a question-and-answer checklist last month to help taxpayers understand if they’re eligible for the credit.
The AICPA has provided ERC resources and information to its members so they can warn clients of red flags that could indicate that a vendor is dishonest and discourage dealings with ERC mills. Among the warning signs, businesses should be wary of vendors that require large, upfront contingency fees and those who fail to sign the amended payroll tax returns.