IRS Announces ERC Withdrawal Process

The IRS has officially released a process to allow taxpayers to withdraw Employee Retention Credit (ERC) claims. The plan is part of a larger initiative to protect taxpayers from ERC-related scams.

In September of this year, the IRS announced a moratorium on processing new ERC claims in order to subject already submitted claims to higher scrutiny. In that announcement, the IRS committed to establishing a process for taxpayers to withdraw potentially dubious ERC claims, which it followed through on this month.

The withdrawal process will allow taxpayers who have come to doubt their eligibility to withdraw their claim without incurring the additional expense of filing a new set of amended payroll tax returns – or running the risk of paying penalties and interest should their claim be denied.

Who Qualifies for Withdrawal?

To use the withdrawal process, a taxpayer must meet all four requirements:

1. The ERC claim was made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X);
2. The adjusted return was filed only to claim the ERC and made no other adjustments;
3. The taxpayer withdraws the entire amount of their ERC claim; and
4. The IRS has not paid the claim, or the taxpayer has not cashed or deposited the refund check.

How To Withdraw a Claim

The withdrawal process varies depending on whether a refund check has been issued and whether the claim is presently under audit. Summarized instructions are as follows, and detailed instructions can be found on the IRS website.

• Taxpayers whose claim has not been paid and whose claim is not under audit will need to fax the IRS a copy of the adjusted returns on which the ERC was claimed with the word “WITHDRAWN” written on the first page.
• Taxpayers who have not received a refund and whose claim is under audit will need to submit copies of the returns with the word “WITHDRAWN” written on the first page to their examiner or, if one has not been assigned, as part of the response to their audit notice.
• Taxpayers for whom a refund check has been issued but not cashed or deposited and whose claim is not under audit will need to mail the IRS a copy of the returns with the word “WITHDRAWN” written on the first page along with the voided refund check.

When It’s OK To Proceed With a Claim

The IRS has consistently encouraged taxpayers interested in claiming an ERC to retain the services of a trusted tax professional rather than an ERC marketer. Despite the moratorium and the increased scrutiny, taxpayers with sound facts meeting ERC eligibility standards who have had their claims prepared by a trusted tax professional should not hesitate to submit their claim.

To determine if your business truly qualifies for the ERC program, reach out to your KSM advisor or complete this form.