By: Tim Watt | 11/29/23
The IRS has now launched details offering an option for taxpayers to withdraw their unpaid Employee Retention Credit (ERC) claim. This new withdrawal process delivers on the previous September 19th introduction of the program (here). Taxpayers concerned about eligibility of ERC claims filed requesting a refund, can withdraw the claim and avoid getting a refund for which they are ineligible. Claims that are successfully withdrawn would be treated as if they were never filed and the IRS will not impose penalties or interest.
Below are the specific details of:
These details are also available from the IRS Fact Sheet FS-2023-24, found here.
This special withdrawal process is a welcome effort by the IRS. Especially for honest taxpayers that may have been misled in the environment of aggressive advertising, direct mail solicitations and online promotions peddled by promoters and marketers of the ERC program. Taxpayers who suspect their unpaid ERC claim is at-risk (lacking employer eligibility and/or substantiation, contains qualified wage calculation errors or otherwise) should first seek the advice of an independent trusted tax professional who understands the complex ERC rules and related interactions of general income tax law. A tax professional will also be able to assist with the claim withdrawal process. Proactive mitigation efforts are strongly advised. Relying on a non-tax professional ERC provider that charged a contingency fee, may not be the best path forward. IRS repayment liability, penalties and interest could prove costly to the unwary.
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Employers can use the ERC claim withdrawal process if of all the following apply:
Employers that can’t use this process may still be able to file another adjusted return if they need to:
Employers that filed their ERC claim through a professional payroll company and want to request a claim withdrawal will need to contact the entity that filed the claim on their behalf. These companies may include a certified professional organization (CPEO), professional employer organization (PEO) or other Internal Revenue Code Section 3504 agents.
Taxpayers that filed an adjusted return to claim the ERC and who want to withdraw their entire claim can use the process below. They must follow the steps for each tax period for which they are requesting a withdrawal. The fax line is a secure, relatively fast way for the IRS to receive withdrawal requests and can be accessed using a computer or mobile device. If the IRS accepts the withdrawal request, the adjusted tax return will not be processed.
Section A: Employers who haven’t received a refund and haven’t been notified their claim is under audit
If the employer filed an adjusted return (Form 941-X, 943-X, 944-X, CT-1X) to claim the ERC and would like to withdraw the entire claim, they can use the process below. If they filed adjusted returns for more than one tax period, they must follow the steps below for each tax period for which they are requesting a withdrawal.
To request a withdrawal, follow these steps:
If a taxpayer can’t fax their request, they can mail the signed copy to the address in the instructions for the adjusted return that applies to their business or organization. Before doing so they should make a copy of the signed and dated first page to keep with their tax records. It will take longer for the IRS to receive a mailed request. Track the package to confirm delivery.
Section B: Employers that haven’t received a refund and have been notified their claim is under audit
Employers facing an IRS audit, also referred to as an exam, can still withdraw their ERC claim. If a taxpayer has been notified that the IRS is auditing the adjusted return that includes their ERC claim, they should prepare their withdrawal request using the steps in Section A, above, but they should not fax it to the withdrawal fax line or mail it using the address below. Instead:
Section C: Employers who received a refund check but haven’t cashed or deposited it
Employers that have received a refund check but still haven’t cashed or deposited it, can still withdraw their claim. They need to mail the voided check with their withdrawal request using these steps:
Cincinnati Refund Inquiry Unit
PO Box 145500
Mail Stop 536G
Cincinnati, OH 45250
Track your package to confirm delivery.
Taxpayers will get a letter from the IRS about whether their withdrawal request was accepted or rejected. The approved request is not effective until the taxpayer has the acceptance letter from the IRS.
If the IRS accepts the withdrawal, the taxpayer may need to amend his/her income tax return.
There are likely additional tax and legal matters each taxpayer may need to consider other than simply withdrawing an unpaid ERC refund claim and declaring no harm, no foul. Seeking professional tax advice and counsel in these situations cannot be overstated. For example:
Like most matters in the federal income tax area, taxpayer results are unique. Comparisons across a broad spectrum of taxpayers are hardly linear. Our commentary here only highlights some of the tax compliance and IRS enforcement actions businesses with at-risk ERC claims should take seriously. Stay tuned for more ERC updates with respect to the impending IRS settlement program for paid claims.
Bennett Thrasher has expertise in handling IRS Employee Retention Credit tax issues with the IRS. For more information, please contact Tim Watt, Tax Partner, or James Pickett, Director of Tax Controversy, or by calling 770.396.2200.
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