The IRS has unveiled a new ‘withdrawal process’ for select small businesses that filed claims for the Employee Retention Credit (ERC) during the pandemic and now believe they are ineligible. The special process was initially introduced as a relief plan for small businesses who applied for this credit in good faith but were subsequently contacted by the IRS regarding the legality of their claims and are now facing repayment, interest, and penalties.
The Need for Special ERC Withdrawal Process
The ERC was designed to incentivize eligible small businesses to retain employees while navigating the economic turmoil caused by COVID-19. However, the credit has been misused by many ‘fly-by-night’ tax consultants who used aggressive marketing tactics to lure small businesses to amend their payroll tax returns and unlawfully claim the tax credit. This exploitation prompted a spike in invalid filings, which ultimately drove the IRS to suspend the processing of new ERC claims till the end of 2023.
The special withdrawal process will allow businesses who filed for ERC under the influence of third parties to withdraw their claims, safeguarding them from further audits and penalties. Claims that are withdrawn will be treated as if they were never filed; however, this doesn’t exempt businesses that willfully filed fraudulent ERC claims or conspired to do so from criminal investigation and prosecution.
Who Can Request ERC Withdrawal
Businesses can use the ERC claim withdrawal process if they meet the following criteria:
- They claimed ERC on an employment tax return form (Form 941-X, 943-X, 944-X, CT-1X) but have not received a refund, or such a refund has not been cashed or deposited;
- They filed an adjusted return only to claim ERC without making any other adjustments or
- They intend to withdraw the entire ERC claim.
While this special ERC withdrawal process is a privilege extended to businesses, they must be cautious and certain about withdrawing their claims. ERC withdrawal is permanent, and you can’t take it back once requested.
The IRS has time and again urged businesses to have their claims assessed by reputable tax providers. It is vital that businesses who feel their claims are invalid or inaccurate consult with a trusted tax provider experienced in credits and incentives to re-evaluate their refunds before requesting a withdrawal.
How to Request ERC Withdrawal
The steps for initiating the withdrawal process differ depending on the business situation.
- Those who filed the claim through their payroll provider, or any third-party agent should consult their representatives to initiate the withdrawal process. Depending on whether the ERC claim was filed individually or batched with others, the payroll company may need to submit the withdrawal request on behalf of the business.
- If the business claimed ERC themselves and has not received, cashed, or deposited a refund check and has not been notified that the claim is under audit, they should fax or mail their withdrawal request to the IRS. The IRS has established a specific fax line, 855-738-7609, to receive withdrawal requests.
- If the business has been notified that they are under audit, it should send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.
Those notified that their ERC claim is under audit will need to follow a specific set of procedures to initiate their withdrawal, which will vary depending on the circumstances of each case.
If the business has received a refund check but has not cashed or deposited it, they can still withdraw their claim. They should mail the voided check with the withdrawal request to the IRS.
What to do Next
It can be a difficult decision to request a withdrawal. Businesses should evaluate their options and understand the nuances of the ERC program before deciding to withdraw their claims.
At alliantgroup, we have helped twenty-seven thousand small businesses claim this lucrative credit in the past. At the same time, we have disqualified nearly ten thousand claims because we strictly follow the qualification criteria prescribed by the IRS. With two decades of experience in delivering tax credits and incentives, we will continue to spread awareness and empower small businesses without compromising the integrity of the process.
If you are feeling apprehensive about your claim and thinking about requesting a withdrawal, you can schedule time with one of our experts beforehand to discuss. You can also reach us at 844.524.0077.