ERC Update: IRS Explains Withdrawal Option Process

November 16, 2023

Background

Due to IRS concerns about an influx of improper Employer Retention Credit claims, the agency announced an immediate moratorium on processing new ERC claims through, at least, the end of this year (IR-2023-169) on September 14.

As referenced in our previous tax blog, ERC UPDATE - IRS will not process new Employee Retention Credit (ERC) claims, the IRS also indicated the addition of a special withdrawal option for those who may have filed a claim in error, due to aggressive tax promoters that have mislead small businesses to file improper claims. This option gives those taxpayers the opportunity to withdraw their claim to avoid receiving a refund for which they are ineligible. Now, the IRS has released guidance on who is eligible to request to withdraw their ERC claim - and the process on how to do so.

Who is eligible to request to withdraw an ERC claim?

The IRS guidance explains the requirements to use the ERC claim withdrawal process.

Employers can use the ERC withdrawal process if all four of the following apply:

The ERC claim was made on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X).
The amended return was filed only to claim the ERC, and not for any other adjustments to the return.
The taxpayer wants to withdraw the entire amount of the ERC claim; and
The IRS has not paid the claim, or - if the IRS has already paid the claim - the taxpayer has not cashed or deposited the refund check.

The IRS also notes that employers who do not meet these requirements. and are not eligible to withdraw their claim, may still be able to file an additional amended return to reduce the amount of their claim. More information on this process can be found on the IRS’ ERC Frequently asked questions page.

The process for requesting an ERC claim withdrawal

The process for requesting an ERC claim withdrawal varies, depending upon the taxpayer’s situation. If a payroll company was used to file the ERC claim, that company should be consulted about withdrawing the claim, as they may need to submit the withdrawal request for the taxpayer.

Taxpayers who filed their own ERC claim can make a copy of the adjusted return with the claim to be withdrawn. In the left margin of the first page of the return, the word “Withdrawn” should be included. In the right margin of the first page of the return, the authorized person should sign and date it, and include their name and title written next to their signature. The withdrawal can then be faxed to the IRS’ ERC withdrawal fax line (855-738-7609) or mailed to the address in the instruction for the adjusted return.
For ERC claims under audit, the withdrawal requests can be prepared and sent to the assigned examiner.
Taxpayers who have received a refund check, but have not cashed or deposited the check, should prepare the withdrawal claim request and include the voided refund check. The taxpayer will need to mail the withdrawal claim request with the voided check to the IRS.

The IRS provides specific instructions on its Withdraw an Employee Retention Credit (ERC) claim page.

Next steps

Following the submission of the ERC claim withdrawal request, the IRS will send the taxpayer a written notice indicating whether the withdrawal has been accepted. The approval of the submission is not effective until an IRS acceptance letter has been received, and an amended income tax return may be required if the withdrawal is accepted.

Final thoughts

This is the latest information from the IRS regarding ERC claims. In a recent IRS webinar regarding the ERC claim withdrawal process, the IRS reiterated that it is aggressively pursuing aggressive ERC claim promoters with both civil and criminal lawsuits. In addition, based on stricter compliance reviews during the moratorium period, the IRS advised that the processing time for existing ERC claims will increase from the current standard goal of 90 days to 180 days.

The IRS also indicated that notwithstanding the current moratorium regarding ERC claims, there is no current plan to extend the time to file potential ERC claims. Therefore, these are the current ERC claim filing deadlines – April 15, 2024, for 2020 payroll tax returns for Q2, Q3 and Q4, AND April 15, 2025, for 2021 payroll tax returns for Q1, Q2 and Q3.

Herbein will continue to review appropriate ERC claim opportunities based on valid gross receipts reductions for the applicable quarters of 2020 and 2021. We are NOT preparing any ERC claims based on partial shutdowns or supply chain disruption. Please contact your Herbein tax consultant if you have questions regarding whether to withdraw a previously filed ERC claim or ERC claim opportunities based on gross receipts reductions.

Article contributed by Olivia K. Schmid