On Oct. 19, 2023, the IRS announced procedures allowing taxpayers to withdraw previously filed claims for the employee retention credit (ERC). This announcement comes after the IRS suspended the processing of new ERC filings on Sept. 14, 2023.
What’s happened with the ERC, and how did we get here?
Since the enactment of the ERC amid a whirlwind of COVID-19 response efforts in 2020, the ERC has experienced an unusual volume of improper filings, which has brought on an equally unusual series of responses from the IRS. Over the past year, the IRS has issued repeated warnings about fraudulent and improper ERC claims, culminating in an announcement by the IRS on Sept. 14, 2023, that it was halting processing of ERC claims at least until the end of 2023.
That announcement also alerted taxpayers that the IRS was developing a settlement program and a claim withdrawal process for taxpayers who had filed improper ERC claims. In the announcement, the IRS said it would release more details about the withdrawal and settlement programs for taxpayers who may be concerned that their ERC claim is improper. On Oct. 19, 2023, the IRS released details about the withdrawal program, the requirements to qualify for withdrawal, and the procedures taxpayers must follow to withdraw an ERC claim.
Who qualifies for the ERC claim withdrawal process?
Taxpayers who wish to withdraw an ERC claim are required to withdraw their entire ERC claim; no partial withdrawals are allowed. If the taxpayer withdraws their claim, the IRS will treat it like the taxpayer never filed a claim for purposes of applying civil penalties and interest. Importantly, for taxpayers who have reconsidered filing their claim, there is no risk of future repayment, interest, or penalties.
A taxpayer qualifies to use the withdrawal process if they meet four requirements:
- The taxpayer made the claim on an adjusted employment return.
- The taxpayer filed the adjusted return only to claim the ERC and made no other adjustments.
- The taxpayer wants to withdraw the amount of their ERC claim.
- The IRS hasn’t paid the taxpayer’s claim or, if the IRS has paid the claim, the taxpayer has not cashed or deposited the refund check.
How does the ERC claim withdrawal process work?
The announcement provided procedures for taxpayers to follow if they wish to withdraw their ERC claim:
- Taxpayers who used a payroll provider to file an ERC claim should contact their payroll provider because the provider may need to submit the withdrawal request on the taxpayer’s behalf.
- Taxpayers who filed their ERC claims themselves and haven’t been notified that they’re under an IRS audit can withdraw their claim by faxing or mailing the withdrawal request.
- Taxpayers under an IRS audit can provide their withdrawal request directly to the IRS examiner or in response to an examination notice.
If a taxpayer isn’t eligible to use the withdrawal process, or if a taxpayer doesn’t want to withdraw their entire ERC claim, the IRS reaffirmed that taxpayers can amend their payroll tax returns to reduce or eliminate their ERC claim. The IRS continues to work on guidance for employers that filed an improper ERC claim and have already received the payment.
What should taxpayers do if they have pending ERC claims?
Taxpayers with pending ERC claims should connect with their tax advisor to review the basis and justification for filing their ERC claim and determine whether they are comfortable with the strength of their position. The IRS encourages taxpayers to consult with a tax professional to review their ERC claim, rather than using an ERC marketing firm. After reviewing their claims, taxpayers who are doubtful of the validity of their ERC claim should discuss their options with their tax advisor, including the potential to withdraw their ERC claim.
For more information on the ERC withdrawal process, see the IRS instructions or attend the IRS webinar on Nov. 2, 2023.
