The IRS has introduced a significant update for business owners regarding the notorious Employee Retention Credit (ERC). The update addresses the issue of “ERC specialists” aggressively promoting the credit to businesses and offers a solution for those who may have fallen victim to those bad actors or are having second thoughts on their claims.
Last month, the IRS issued a moratorium on new ERC claims after a significant surge in claims over the late summer. Now, they are offering a program that allows employers to withdraw inaccurate claims and avoid penalties, interest, and future repayment.
Important details on the withdrawal process
The withdrawal option is available for:
- Employers who filed an ERC claim but haven’t received a refund.
- Employers with claims that are still being processed.
Withdrawn claims will be treated as if they were never filed, with no penalties or interest imposed.
Help for business owners, no safety net for intentionally fraudulent claims
The IRS is focused on helping business owners who may have fallen victim to fraudulent ERC schemes or are having second thoughts about their claims. The withdrawal option provides taxpayers a way out. IRS Commissioner Danny Werfel continues to urge business owners to seek the advice of trusted tax professionals rather than a purported “specialist” or marketing company to assist with these complex claims.
The IRS has emphasized that individuals who intentionally filed fraudulent claims or were involved in fraudulent activities will not be exempt from potential criminal investigations and prosecution.
Qualifications for the withdrawal process
Certain conditions must be met for an employer to utilize the withdrawal process:
- The claim was made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- The amended return was filed solely to claim the ERC, and no other adjustments were made.
- They would like to withdraw the entire amount of their ERC claim.
- The IRS has not paid their claim, or the IRS has paid their claim, and the refund check has not been cashed or deposited.
Taxpayers who are not eligible for withdrawal can reduce or eliminate their ERC claim by filing an amended return. Details on that process can be found in the Correcting an ERC claim section of the IRS Employee Retention Credit FAQ page.
Instructions for withdrawal
Those interested in withdrawing a claim should follow these instructions carefully:
- Consult with your professional payroll company if they filed your ERC claim. The payroll company may need to submit the withdrawal request on your behalf, depending on if the claim was filed individually or grouped with others.
- Fax a withdrawal request to the IRS IF you have not received, cashed, or deposited a refund check, and you have not been notified that your claim is under audit. Mailing the request is acceptable but may be subject to delays.
- For those who have been notified of an audit: send your withdrawal request to your assigned examiner or respond to the audit notice if no examiner has been assigned.
This is a summary of the steps, but more detailed instructions on the withdrawal process can be found at IRS.gov and employers can also consult their payroll companies for assistance if needed.
There will be an IRS webinar on November 2 covering the latest information on the ERC moratorium and withdrawal or correction of previously filed claims.
After a withdrawal request is submitted
A withdrawal request is not valid until you receive a letter from the IRS stating whether your request was accepted or rejected. In some cases, an accepted withdrawal request may require an amendment to your income tax return. This helpful IRS resource explains how ERC claims impact your income tax return. Seek guidance from a trusted tax professional if amendments are needed.
Additional assistance for those who have already received their refund coming soon
The IRS continues to work in the best interest of business owners and is working on additional guidance for a program that applies to employers who were misled by ERC promoters and have already received payment.
The guidance is expected later this fall.
Protect your business
Once again the IRS and tax professionals are advising caution against marketers and “ERC specialists” as they have already adjusted their messaging after the September moratorium. Many are conning employers into loan agreements with the promise of a refund. Be aware of these ERC scam red flags and when in doubt, consult with a tax professional.
Companies who had their ERC claim prepared by a promoter based on a full or partial suspension of their operations are strongly encouraged to seek a second opinion from a tax professional to assess the legitimacy of their credit claims. Fill out the form on this page to seek help from a member of our tax practice.