IRS Provides Guidance on Withdrawing Employee Retention Credit Claims

IRS Launches ERC Claim Withdrawal Process

On October 19, 2023, the IRS alerted taxpayers of the Employee Retention Credit (“ERC”) withdrawal process. The IRS created the program to assist taxpayers who may have been solicited by ERC promoters into filing ineligible claims. The IRS will treat successfully withdrawn ERC claims as if they were never filed and will not impose penalties or interest. Withdrawal of a fraudulent ERC claim that the taxpayer willfully filed, or assisted or conspired with, will not exempt the taxpayer from any potential criminal investigation or prosecution. Taxpayers concerned about criminal exposure may want to consult with a lawyer about potential opportunities to mitigate liability through voluntary disclosure or other available options.

Who Can Seek Withdrawal of an ERC Claim
Taxpayers are eligible for the ERC withdrawal if all of the following apply:

• The taxpayer made the ERC claim on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X);
• The taxpayer filed the adjusted return solely to claim the ERC credit and made no other adjustments;
• The taxpayer intends to withdraw the entire ERC claim amount; and
• The taxpayer has yet to receive a refund check, or the taxpayer is in receipt of a refund check but has not cashed or deposited it.

We anticipate that the IRS will issue more guidance concerning taxpayers that have cashed their refund check but still wish to withdraw their claim.

How to Submit an ERC Claim Withdrawal

The IRS provided four scenarios where taxpayers may request an ERC withdrawal claim:

1. If a payroll company filed an ERC claim on behalf of a taxpayer, the payroll company may need to submit a claim withdrawal for the taxpayer depending on whether the ERC claim was filed individually or batched with other claims.
2. Taxpayers who filed their own ERC claims, have not received, cashed, or deposited a refund check nor received notification that they are under audit.
3. Employers that received notification of audit.
4. Taxpayers that received a refund check, but have not yet cashed or deposited it, are also eligible to withdraw their ERC claim.

The IRS will notify the taxpayer whether their request is accepted or rejected, and no requests are approved until the taxpayer receives an acceptance letter from the Service. The IRS has not declared a timeline for expected responses.

Additional Guidance to Come

The IRS will continue to create guidance to help misled employers that filed ERC claims and received payment from the Service. The IRS expects to issue additional details later this fall. We also anticipate that the IRS will issue more guidance concerning taxpayers that cashed their refund check but now seek to withdraw their claim.

Authored by Mark Mesler and Scott St. Lifer