IRS Releases ERC Withdrawal Process Details

Emphasizing that the IRS and tax professionals continue to see ERC promoters misleading and harming honest employers “by misrepresenting and exaggerating who is eligible for [the ERC],”¹ the IRS issued IR-2023-193 and FS-2023-24, which provide further information about the IRS’s “special withdrawal process.” Additionally, there’s a new website, IRS.gov/withdrawmyerc, containing a sample claim withdrawal request, and more.

According to the IRS, the withdrawal option is specifically intended to “help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims.”² Moreover, the IRS states that withdrawn claims will be treated as if they were never filed, avoiding both penalties and interest. Let’s take a closer look at what this option entails.

Who Qualifies and Who Doesn’t?

Employers, whether under audit or not, may utilize the ERC claim withdrawal process if of all the following apply:

• They made the claim on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X).
• They filed the adjusted return only to claim the ERC, and they made no other adjustments.
• They want to withdraw the entire amount of their ERC claim.
• The IRS has not paid their claim, or the IRS has paid the claim, but they haven't cashed or deposited the refund check.³

Note that, so long as the above criteria are otherwise satisfied, even employers who willfully filed fraudulent claims, assisted in such conduct or conspired to do so may still withdraw a fraudulent claim, but withdrawal will not exempt those employers from potential criminal investigation and prosecution.

Employers who may not utilize this process are those employers who filed and already received their refund and cashed or deposited it. For those employers, they may file another adjusted return if they want to either: (1) reduce their initial ERC claim amount, or (2) make other changes.

Making the Withdrawal Request

A. Employers Who Haven’t Received a Refund and are not Under Audit

The process described below is applicable for taxpayers who did not file an ERC claim through a professional payroll company. If a professional payroll company filed an employer’s claim, the employer needs to contact the company that filed on its behalf.

As outlined by the IRS, in order to withdraw their entire claim, employers must follow these steps for each tax period for which they are requesting a withdrawal:

1. Make a copy of the adjusted return with the claim they wish to withdraw.
2. In the left margin of the first page, write "Withdrawn."
3. In the right margin of the first page:
   • Have an authorized person sign and date it.
   • Write their name and title next to their signature.‍
4. Fax the signed copy of the return to the IRS's secure ERC claim withdrawal fax line at 855-738-7609. This is the withdrawal request. Keep the copy with tax records.⁴

The IRS appears to express a preference for faxing withdrawal requests using the “withdrawal fax line,” but it also permits mailing as an alternative means (using the address in the adjusted return’s instructions).⁵

B. Employers Who Haven’t Received a Refund but are Under Audit

Employers under examination that want to withdraw their ERC claim, should still use the same steps in section A above; however, they should neither fax it to the withdrawal fax line, nor mail it. Rather:

• If they've been assigned an examiner, they should communicate with the examiner about how to fax or mail the withdrawal request directly to them.
• If they haven't been assigned an examiner, they should respond to the audit notice with the withdrawal request, using the instructions in the notice for responding.⁶‍
  

C. Employers Who Received a Refund Check that Remains Uncashed/Undeposited

The IRS clarifies that “employers that have received a refund check but still haven't cashed or deposited it, can still withdraw their claim.”⁷ In this case, employers must mail the voided check with their withdrawal request and:

1. Prepare the claim withdrawal request using the steps in Section A, above, but don't fax the request.
2. Write "Void" in the endorsement section on the back of the refund check.
3. Include a note that says, "ERC Withdrawal" and briefly explain the reason for returning the refund check.
4. Make copies for tax records of the front and back of the voided check, the explanation notes and the signed and dated withdrawal request page.
5. Don't staple, bend or paper clip the voided check; include it with your claim withdrawal request and mail it to the IRS at:
   Cincinnati Refund Inquiry Unit,
   PO Box 145500,
   Mail Stop 536G
   Cincinnati, OH 45250
6. Should track the package to confirm delivery.⁸
   

Conclusion

The IRS indicates that after withdrawal requests are submitted, taxpayers should expect to get a letter from the IRS⁹ letting them know whether the requested was accepted or rejected. In fact, the IRS states that “[t]he approved request is not effective until the taxpayer has the acceptance letter from the IRS.” Moreover, even if accepted, the matter isn’t necessarily complete: taxpayers may need to correspondingly amend their income tax returns.

Importantly, additional information or clarification may be forthcoming. The IRS highlighted that tax professionals and others can register for an upcoming Nov. 2, 2023, IRS webinar, Employee Retention Credit: Latest information on the moratorium and options for withdrawing or correcting previously filed claims.

Remember, if you withdraw your request you are asking the IRS not to process the complete adjusted employment tax return for the ERC claim tax period. This decision is best made with a trusted tax professional at your side.