On Oct. 19, 2023, the Internal Revenue Service (IRS) announced a special withdrawal process for employers that previously submitted Employee Retention Credit (ERC) claims that they believe may be inaccurate.
Under the program, employers who submitted ERC claims but have not yet received a refund may withdraw their claims and avoid future repayment obligations, interest, and penalties.
The IRS created the withdrawal program to help businesses that were pressured by aggressive marketing tactics into submitting ERC claims that the businesses now believe are or may be ineligible claims.
The ERC is a refundable tax credit intended for businesses that continued to pay employees during the COVID-19 pandemic despite experiencing a significant decline in gross receipts and/or a full or partial suspension of business activities due to an applicable governmental order.
Since the ERC was enacted, however, a cottage industry of promoters has aggressively marketed the credit, falsely suggesting that nearly all businesses are eligible for the ERC (regardless of whether their gross receipts declined or their operations were suspended in a qualified manner) and, typically, demanding a percentage of the business’ anticipated ERC as payment for their services.
In response to these tactics, the IRS has received a deluge of ERC claims, and last month it announced a moratorium on processing new ERC claims through at least the end of the year and enhanced compliance reviews for previously filed claims.
Who Can Request Withdrawal of a Claim?
An employer that would like to withdraw its ERC claim may request withdrawal under the new IRS program if all of the following are true:
- The employer made the ERC claim on an adjusted employment return (e.g., Forms 941-X, 943-X, 944-X, CT-1X);
- The employer filed the adjusted return only to claim ERC and made no other adjustments;
- The employer wants to withdraw the entire amount of their ERC claim; and
- The IRS has not paid the ERC claim, or the IRS has paid the claim, but the employer hasn’t yet cashed or deposited the refund check.
Taxpayers who willfully filed a false claim, or who assisted or conspired with others to file a false claim, continue to be subject to penalties, including potential criminal prosecution.
How to Withdraw an ERC Claim
To participate in the ERC claim withdrawal program, taxpayers must carefully follow instructions available here. These instructions are also summarized below:
- Taxpayers whose professional payroll companies 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 claim was filed individually or together 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.
- 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.
Taxpayers 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 here.