By Debbie Tam, CPP
The IRS unveiled the withdrawal process for taxpayers who wish to withdraw a previously filed Employee Retention Credit (ERC) claim. The process is part of an IRS effort to combat a “tsunami” of false ERC claims, a result of aggressive marketing tactics of ERC mills (IR 2023-193, 10/19/2023).
Moratorium on ERC claims. The IRS placed a moratorium on the processing of new ERC claims from September 14, 2023, until at least December 31, 2023. IRS Commissioner Daniel Werfel hopes that the pause will send a message to ERC promoters as well as give taxpayers time to contact a trusted tax professional to review an ERC claim prior to filing. While ERC claims may continue to be submitted, the IRS will not be reviewing those claims until next year and taxpayers should use extreme caution before making a claim (see IRS Hits the Pause Button on New ERC Claims Until At Least December 31, 09/15/2023).
Withdrawal process. Using the withdrawal process, taxpayers who filed an ERC claim may withdraw their submission, possibly avoiding future repayment, interest, and penalties. The process was created as an option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims.
Why withdraw an ERC claim. Penalties and interest will not be imposed if a taxpayer withdraws an ineligible ERC claim. The IRS will treat withdrawn claims as though they were never filed. However, willful filers of fraudulent claims, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.
Who can withdraw an ERC claim. The following employers may withdraw an ERC claim:
- Employers that claimed the ERC on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- Employers that filed the adjusted return only to claim the ERC, and made no other adjustments.
- Employers that want to withdraw the entire amount of their ERC claim.
- Employers whose claim has not yet been paid or employers who have not yet cashed or deposited the refund check.
Employers not eligible to use the withdrawal process may reduce or eliminate their ERC claim by filing an amended return.
How to withdraw an ERC claim. The withdrawal process depends on whether the employer has been notified that they are under audit or if the claim was submitted on their behalf by a payroll service provider.
- Not under audit and no refund received. For employers who submitted an ERC themselves, haven’t received, cashed, or deposited the refund and have not received notification that they are under audit, a withdrawal request may be faxed to the IRS. The IRS set up a special fax line to receive these requests. Mailed requests are also accepted but processing may be delayed.To withdraw the claim, the employer must submit a copy of the adjusted return with the claim that is to be withdrawn and: (1) write “Withdrawn” in the left margin of the first page of the copy of the amended return; (2) have the authorized person sign and date the first page of the copy in the right margin; (3) fax the signed copy to the IRS’s ERC withdrawal line found at IRS.gov/withdrawmyerc; and (4) retain a copy for tax records.
- Not under audit, refund received but not yet cashed or deposited. Employers who are not under audit and have received a refund, but have not yet cashed or deposited it, must complete the same process as above, but mail the check and the copy of the amended return to the IRS at the mailing address provided at IRS.gov/withdrawmyerc. The employer should write “void” on the endorsement section of the refund check and include a note that says “ERC Withdrawal” with a brief explanation for the return of the check. A copy should be retained for tax records.
- Under audit. For employers who have been informed they are under audit, a withdrawal request must be submitted to the assigned examiner or in a response to the audit notice if no examiner is assigned.
- Submitted by a payroll service provider. For employers who used a payroll service provider to file their ERC claim, they should contact the payroll company to determine if the provider will submit the withdrawal request on their behalf. This will depend on whether the payroll company submitted ERC claims on an individual basis or batched with other clients.
Next steps. Employers that submit a withdrawal request will receive a letter from the IRS whether their request is approved or rejected. If a withdrawal is accepted, the employer may need to submit an amended return.
Webinar available. The IRS will be holding a webinar on November 2, 2023, to provide the latest information on the moratorium and options for withdrawing or correcting previously filed claims.
Settlement program. Werfel also announced that the IRS is developing a settlement program that will allow taxpayers to make repayments for an improperly received ERC payment that has been cashed or deposited. Details on the settlement initiative have not yet been released but are expected later this fall.
For information regarding the ERC, see Payroll Guide ¶20,905.
