As part of a broader initiative to protect small businesses and organizations against scams, the Internal Revenue Service (IRS) has unveiled new details regarding the withdrawal process to help those who filed an Employee Retention Credit (ERC) claim and are concerned about its accuracy. This withdrawal option allows certain employers who have filed an ERC claim but have not yet received a refund to withdraw their submission. By doing so, they can avoid future repayment, interest, and penalties. Additionally, employers that submit an ERC claim still in the processing stage can withdraw their claim, preventing the disbursement of ineligible refunds.
ERC Withdrawal Process
The IRS created the withdrawal option to help small business owners and others who may have been coerced, misled, or pressured into submitting ineligible claims by aggressive ERC marketers or promoters. Claims withdrawn will be treated as if they were never filed, and the IRS will not impose penalties or interest.
Those who knowingly filed a fraudulent claim should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.
When appropriately applied, the ERC is a refundable tax credit with stringent requirements designed for companies that continued paying employees during the COVID-19 pandemic. This support extended to businesses that faced full or partial operational suspensions due to government mandates or experienced a substantial decline in gross receipts within the designated eligibility periods. It is important to note that this credit is not available to individuals. So far, the IRS has received approximately 3.6 million claims for this credit.
In July, the IRS announced a shift in its focus towards scrutinizing ERC claims to ensure compliance, including intensifying audit efforts and criminal investigations targeting promoters and businesses filing dubious claims. The IRS is actively pursuing hundreds of criminal cases and has referred thousands of ERC claims for in-depth audits.
The Impact of the Moratorium
The introduction of the new withdrawal process comes on the heels of the September 14 announcement, which declared an immediate halt in processing new ERC claims due to a surge in ineligible ERC claims. The moratorium is expected to last until at least the end of this year. Payouts for claims submitted before September 14 will continue, albeit at a slower pace, due to heightened compliance scrutiny. With these stricter compliance reviews, the processing timeline for existing ERC claims will extend from the previous 90-day standard to 180 days and potentially even longer if a claim undergoes further audit. The IRS may also request additional documentation from the taxpayer to verify the claim is legitimate.
The IRS continues to warn taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. The IRS is also working on guidance to help employers that were misled into claiming the ERC and have already received the payment.
Businesses Who Can Withdraw an ERC Claim
Employers are eligible to utilize the ERC claim withdrawal procedure if the following conditions apply:
They have previously claimed the credit on an adjusted employment return, such as Forms 941X, 943-X, 944-X, or CT-1X.
The adjustment to their return was made solely for the purpose of claiming the ERC, with no other modifications.
Their intention is to withdraw the entire ERC claim amount.
The IRS has not paid the ERC claim, or the IRS has paid the claim, and the claimant has not yet cashed or deposited the refund check.
Taxpayers’ ineligible for the withdrawal process can reduce or eliminate their ERC claim by filing an amended return.
How to Withdraw an ERC Claim
Taxpayers should carefully follow the specific guidelines provided at IRS.gov/withdrawmyERC to take advantage of the withdrawal process.
Taxpayers who use a professional payroll company should consult with the payroll company. The payroll company might be required to submit the withdrawal request on behalf of the taxpayer, depending on whether the ERC claim was filed individually or in conjunction with others.
Employers who have received an audit notification can send the withdrawal request to the assigned examiner.
Taxpayers who personally filed their ERC claims, have not received, cashed, or deposited a refund check, and have not been notified their claim is under audit should opt for faxing their withdrawal requests to the IRS. The IRS has set up a dedicated fax line to accommodate withdrawal requests, enabling the agency to halt processing before the refund is approved. Alternatively, those unable to fax their withdrawal can mail the request.
Those who received a refund check but have not cashed or deposited it can still withdraw their claim. They should mail the voided check with their withdrawal request.
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