Publish Date

Oct 23, 2023

Protecting Small Businesses: IRS Announces Special Withdrawal Process For Employee Retention Credit Claims

Industry Insights

In a move aimed at safeguarding small businesses and organizations from potential frauds and errors, the Internal Revenue Service (IRS) has unveiled a special withdrawal process for those who have filed Employee Retention Credit (ERC) claims and are concerned about the accuracy of their submissions. This initiative is part of the IRS’s commitment to assist businesses and individuals caught up in the complexities of the ERC, also known as the Employee Retention Tax Credit (ERTC).

The ERC, designed as a refundable tax credit, is intended to provide relief to businesses that continued paying employees during the COVID-19 pandemic while facing operational disruptions due to government orders or experiencing a significant decline in gross receipts. The credit is a valuable lifeline for many businesses, but it comes with precise eligibility requirements to ensure it reaches those who need it most.

With over 3.6 million ERC claims received by the IRS since mid-September, the agency has intensified its scrutiny of compliance concerns. This includes the initiation of audit work and criminal investigations into promoters and businesses that have filed questionable claims. As a result, the IRS has put a moratorium on processing new ERC claims, which will extend until at least the end of the year.

During this moratorium period, existing ERC claims will continue to be processed but at a slower pace due to enhanced compliance reviews. The IRS aims to ensure the legitimacy of claims while protecting businesses from potential penalties and interest payments resulting from false claims promoted by unscrupulous actors. To further combat aggressive marketing and fraudulent activities surrounding the ERC, the IRS urges taxpayers to exercise extreme caution and consult with trusted tax professionals rather than marketing companies.

For those who filed ERC claims but are now having second thoughts or suspect that they were misled by ERC marketers or promoters, the new withdrawal process offers a way out. This option allows certain employers to withdraw their ERC claims, treating them as if they were never filed, without facing penalties or interest.

However, it is essential to note that this withdrawal option is designed to help well-meaning businesses that may have been pressured into filing ineligible claims. Those who willfully filed fraudulent claims or conspired in such conduct will not be exempt from potential criminal investigation and prosecution.

Who can use the ERC claim withdrawal process? Employers who meet the following criteria:

  1. They submitted the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
  2. They filed the adjusted return solely to claim the ERC and made no other adjustments.
  3. They wish to withdraw the entire ERC claim.
  4. The IRS has not paid their claim, or the IRS has paid the claim, but they have not cashed or deposited the refund check.

If you do not meet these criteria but still want to reduce or eliminate your ERC claim, you can do so by filing an amended return, as outlined in the IRS’s frequently asked questions about the ERC.

To withdraw an ERC claim, taxpayers should follow the specific instructions provided on the IRS website. For those whose professional payroll company filed their ERC claim, it is advisable to consult with the payroll company, as they may need to submit the withdrawal request. If you filed your ERC claim independently and have not received, cashed, or deposited a refund check, you can fax your withdrawal request to the IRS using a dedicated fax line. Alternatively, you can mail your request, but it may take longer for the IRS to process. If you have been informed that your claim is under audit, you can send the withdrawal request to the assigned examiner or reply to the audit notice if no examiner has been assigned.

The IRS is working to provide guidance to employers who were misled into claiming the ERC and have already received the payment. This additional support will be available in the coming months.

In conclusion, the IRS’s new withdrawal option is a significant step toward ensuring the integrity of the ERC program while protecting small businesses and organizations from potential fraud and errors. With the implementation of stricter compliance reviews and the introduction of the withdrawal process, the IRS aims to strike a balance between delivering critical relief to eligible businesses and deterring fraudulent claims that harm both the government and genuine taxpayers.

For more information about the Employee Retention Credit or the withdrawal process, please contact a member of the A&M TAX RCIS (Research Credits & Incentives Services) team.