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were pressured or misled by ERC marketers or promoters into filing ineligible claims.”2 Moreover, the IRS states that withdrawn claims will be treated as if they were never filed, avoiding both penalties and interest.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:
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:
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:
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:
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.