Employee Retention Tax Credit News: IRS Announces New ERC Withdrawal Process

The IRS has introduced a new withdrawal process for taxpayers looking to retract previously filed Employee Retention Tax Credit (ERC) claims. This move comes as part of the IRS's efforts to counter the surge in false ERC claims attributed to aggressive marketing tactics used by ERC mills. The moratorium on new ERC claims, initiated from September 14, 2023, until at least December 31, 2023, is aimed at sending a message to ERC promoters while giving taxpayers time to consult responsible tax professionals to review their ERC claims.

Why Withdraw an ERC Tax Credit Claim

Withdrawing an ineligible ERC claim allows taxpayers to avoid penalties and interest. The IRS will treat withdrawn claims as though they were never filed. However, individuals involved in willful filing of fraudulent claims or conspiracy to commit such fraud should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

Who Can Withdraw an ERC Tax Credit Claim

To be eligible to withdraw an ERC claim a taxpayer must meet all the following requirements:

• Employers must have claimed the ERC on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
• Employers must have filed the adjusted return solely for claiming the ERC and made no other adjustments.
• Employers wanting 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 Tax Credit Claim

The withdrawal process depends on whether the employer is under audit or if the claim was submitted by a payroll service provider.

Not Under Audit and No Refund Received:

• Employers who submitted an ERC claim themselves and haven't received, cashed, or deposited the refund may fax a withdrawal request to the IRS or mail it.
• To withdraw the claim, the employer must submit a copy of the adjusted return with the claim to be withdrawn, writing "Withdrawn" in the left margin of the first page of the copy.
• The authorized person must sign and date the first page on the right margin.
• The signed copy is faxed to the IRS's ERC withdrawal line and a copy should be retained for the taxpayer’s records.

Not Under Audit, Refund Received but Not Yet Cashed or Deposited:

• Employers in this category should follow the same process as above but mail the check and the copy of the amended return to the IRS, writing "void" on the endorsement section of the refund check.

Under ERC Tax Credit Audit

Employers informed they are under audit should submit a withdrawal request to the assigned examiner or in response to the audit notice if no examiner is assigned.

Submitted by a Payroll Service Provider

Employers who used a payroll service provider to file their ERC claim should consult the provider to determine if they will submit the withdrawal request on their behalf, depending on the provider's submission method.

Next Steps on an ERC Tax Credit Withdrawal Request

Employers submitting a withdrawal request will receive a response from the IRS, indicating whether the request is approved or rejected. If approved, the employer may need to submit an amended return.

ERC Tax Credit Settlement Program

The IRS is also working on a settlement program that will allow taxpayers to make repayments for improperly received ERC payments that have been cashed or deposited. Details on this initiative are expected to be released later this fall.

In conclusion, the IRS's introduction of the ERC withdrawal process provides an opportunity for taxpayers to rectify ineligible claims and avoid penalties. It's a part of their broader strategy to combat fraudulent claims and give taxpayers a chance to seek professional advice before proceeding. If you require assistance or have questions regarding your ERC claim, Freed Maxick can provide the expert guidance you need. Contact Nick Zoyhofski at nick.zoyhofski@freedmaxick.com to explore how Freed Maxick can help you navigate the ERC withdrawal process and ensure compliance with IRS regulations. Don't hesitate to reach out for personalized support and guidance.