On October 19, 2023, the Internal Revenue Service (IRS) announced a special withdrawal process to assist those who filed an Employee Retention Credit (ERC) claim and are concerned about its accuracy. This process enables filers to withdraw inaccurate ERC submissions and avoid any associated repayment, interest, and penalties.

Why Did the IRS Put This Process in Place?

Enacted with the CARES Act in 2020, the ERC program experienced a flood of claims significantly above predicted amounts. On September 14, 2023, the IRS announced a moratorium of ERC claims due to the suspected fraud arising because of the program. As of the end of July 2023, the IRS Criminal Investigation had started investigations involving over $2.8 billion of potentially fraudulent ERC claims.

As part of a larger effort to protect small businesses and organizations from scams, the IRS established the withdrawal option to aid small business owners and others that may have filed ineligible claims because of pressure or deceit by ERC marketers/promoters.

Who Can Withdraw ERC Claims?

According to the IRS’ press release, any employers meeting all the following criteria are eligible to use the process:

• The employer made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
• The employer filed the adjusted return solely for the ERC claim and made no other adjustments.
• The employer now seeks to withdraw the entire amount of the ERC claim.
• The IRS has not paid the claim, or the employer has not cashed/deposited the ERC refund check.

Notably, even those who do not meet the above criteria can reduce or eliminate their ERC claim through an amended return.

How to Withdraw an ERC Claim

According to the press release, taxpayers should follow the instructions provided by the IRS to utilize the claim withdrawal process. In summary:

• A taxpayer that filed an ERC claim through a professional payroll company should consult that company. The payroll company may also need to file the withdrawal request on the taxpayer’s behalf.
• A taxpayer that filed ERC claims themselves yet has not received/cashed/deposited the refund check, and/or has not been notified that the claim is under audit, should fax their withdrawal request to the IRS. If faxing is not possible, the withdrawal can be mailed, but this process will take longer.
• An employer under audit should send the request directly to the assigned examiner (or respond to the audit notice if an examiner has not been assigned).

If a taxpayer has received a refund check but not cashed or deposited it, they can withdraw the claim by mailing the voiding check with their withdrawal request.

What Is Not Covered by the Withdrawal Process?

The IRS previously noted that they are developing new initiatives to help businesses who found themselves victims of aggressive promoters. The withdrawal process is one of the initiatives; however, it was not established for taxpayers who have received their ERC refund(s). The process for taxpayers who received an improper ERC payment and are seeking to make repayments is expected to be addressed upon the announcement of a settlement program, for which more details are expected to be available this fall.

How Stout Can Help

At Stout, we have deep expertise in ERC, and we have developed the necessary tools, process, and a government orders database to support you in navigating the ERC. We will evaluate your existing documentation, perform an independent analysis of your eligibility position, and provide the supporting documentation required by the IRS so you can make informed decisions pertaining to your ERC claim.