Flash – IRS Provides Employers Way to Withdraw Dubious ERC Claims

Article Highlights:

  • Prior ERC Scam Warnings

  • What is the ERC?

  • IRS Shifting Focus

  • Latest Guidance for Withdrawing a Claim

  • Who Can Withdraw a Claim Under the New Procedure

  • Procedure for Withdrawing a Claim

Despite warnings from the IRS, the American Institute of CPAs, and other professional tax preparer societies, many business owners have fallen victim to aggressive marketing of the Employee Retention Credit (ERC) by marketers or promoters into filing ineligible claims.

As part of a larger effort to protect small businesses and organizations from scams, the IRS has announced the details of a special withdrawal process to help those who filed an ERC claim and are concerned about its accuracy.

The ERC is a refundable payroll tax credit designed for businesses who continued paying employees while shut down due to the COVID-19 pandemic or who had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. The ERC is a complex credit with precise requirements to help businesses during the pandemic, and since mid-September, the IRS has received approximately 3.6 million claims for the credit over the course of the program.

As we revealed in an earlier bulletin, In July, the IRS announced it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has hundreds of criminal cases being worked on, and thousands of ERC claims have been referred for audit. This was followed up on September 14th with another announcement by the IRS of a moratorium on processing new claims while continuing to process claims prior to September 14th at a slower pace with stricter compliance reviews in place.

The latest guidance from the IRS released on October 19 provides a procedure for withdrawing a claim. Employers can use this new ERC claim withdrawal process if ALL the following apply:

  • The claim was made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).

  • The adjusted return was filed only to claim the ERC, and made no other adjustments.

  • The employer wants to withdraw the entire amount of their ERC claim.

  • The IRS has not paid their claim, or the IRS has paid the claim, but the employer hasn’t cashed or deposited the refund check.

To take advantage of this new claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyERC, summarized below.

  • Taxpayers whose professional payroll company 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 taxpayer’s ERC claim was filed individually or batched 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 using a computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.

  • 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.

Those 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 at IRS.gov/withdrawmyERC.

If you have fallen victim to an ERC promoter or marketer and need assistance in determining if the claim is valid and what to do if not, should contact this office for assistance.

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