As reported via IR-2023-193 on 10/19/2023

Special initiative aimed at helping businesses concerned about an ineligible claim amid aggressive marketing, scams

As part of a larger effort to protect small businesses and organizations from scams, the Internal Revenue Service announced the details of a special withdrawal process to help those who filed an Employee Retention Tax Credit (ERTC) claim and are concerned about its accuracy.

This new withdrawal option allows certain employers that filed an ERTC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERTC claim that’s still being processed can withdraw their claim and avoid the possibility of getting a refund for which they’re ineligible.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERTC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

“The IRS is committed to helping small businesses and others caught up in this onslaught of Employee Retention Tax Credit marketing,” said IRS Commissioner Danny Werfel. “The aggressive marketing of these schemes has harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. We want to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and we encourage them to closely review the withdrawal option and the requirements. We continue to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.”

When properly claimed, the ERTC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order, or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

The ERTC is a complex credit with precise requirements to help businesses during the pandemic, and since mid-September, the IRS has received approximately 3.6 million claims for the credit over the course of the program.

In July, the IRS said it was shifting its focus to review ERTC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has hundreds of criminal cases being worked, and thousands of ERC claims have been referred for audit.

The new withdrawal process follows the 9/14/23 announcement of an immediate moratorium on processing new ERC claims. The moratorium, which will last until at least the end of this year, follows a flood of ineligible ERTC claims. Payouts for claims submitted before 9/14/23 will continue during the moratorium period but at a slower pace due to more detailed compliance reviews. With stricter compliance reviews in place, existing ERTC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure the claim is legitimate.

Enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud but also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.

The IRS continues to warn taxpayers to use extreme caution before applying for the ERTC as aggressive maneuvers continue by marketers and scammers.

The IRS is also working on guidance to help employers that were misled into claiming the ERTC and have already received the payment. More details will be available this fall.

Who can ask to withdraw an ERTC claim

Employers can use the ERTC claim withdrawal process if all of the following apply:

• They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).

• They filed the adjusted return only to claim the ERTC, and they made no other adjustments.

• They want to withdraw the entire amount of their ERTC 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.

Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERTC claim by filing an amended return. For details, see the Correcting an ERTC Claim – Amending a Return section of the Frequently Asked Questions About the ERTC.

How to withdraw an ERTC claim

To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyerc, summarized below.

• Taxpayers whose professional payroll company filed their ERTC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer’s ERTC claim was filed individually or batched with others.

• Taxpayers who filed their ERTC claims themselves, haven’t received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS using computer or mobile device. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal using a computer or mobile device can mail their request, but this will take longer for the IRS to receive.

• Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.

Other resources for help

The IRS unveiled a new ERTC Eligibility Checklist in September 2023 to help taxpayers understand if they’re eligible for the credit. Since then, the IRS evolved the checklist into an interactive IRS.gov feature to help employers – and the tax professionals working with them – check potential ERTC eligibility.

The IRS also continues to encourage employers to seek out a trusted tax professional who understands the complex ERTC rules, not a promoter or marketer trying to get a hefty contingency fee while taking advantage of honest taxpayers.

New approach from scammers

Marketers and scammers have already revised their ERTC pitches following the 9/14/23 moratorium announcement. Some are pushing employers who submit an ERTC claim into agreeing to costly up-front loans in anticipation of a refund. The IRS urges taxpayers to avoid these loans and also learn the warning signs of ERTC scams.

More information

Fact Sheet 2023-24 contains more details about the ERTC withdrawal process.

(This is Blog Post #1481)