IRS Announces New Program For Tax Payers to Withdraw Employee Retention Tax Credit Refund Claims

Quick impor­tant note:

Unless you have been liv­ing under a rock in the last year, you most like­ly heard (and still hear­ing) ads pro­mot­ing busi­ness­es to take the Employ­ee Reten­tion Cred­it (ERC). Many of the ads are from unscrupu­lous advi­sors with­out cre­den­tials, and thus have a much low­er risk because they’re not risk­ing a pro­fes­sion­al license from their activ­i­ties. 

If you’re con­sid­er­ing fil­ing a request with the IRS, make darn sure the com­pa­ny AND the per­son you’re work­ing with is an attor­ney, CPA, or Enrolled Agent (EA) AND they have pro­fes­sion­al lia­bil­i­ty insur­ance, so that at least you know the advi­sor has eth­i­cal stan­dards they must fol­low or risk reg­u­la­to­ry sanc­tions and/or los­ing their license to prac­tice.

The insur­ance pol­i­cy helps pro­tect you in two ways. First, you can expect the advi­sor wants to KEEP their insur­ance free from claims, and also, the insur­ance may pay you if you receive bad advice.

Because the IRS has received so many doubt­ful ERC claims, the IRS has actu­al­ly stopped accept­ing them as the agency attempts to cre­ate pro­ce­dures to bet­ter police the appli­ca­tions received. I sus­pect it also has to do with allow­ing a pause by busi­ness employ­ers to take a sec­ond look at the via­bil­i­ty of sub­mit­ting a claim giv­en the amount of mar­ket­ing direct­ed towards them.

On Octo­ber 19, 2023, the IRS rolled out a unique mech­a­nism allow­ing employ­ers to retract pre­vi­ous­ly filed Employ­ee Reten­tion Cred­it (ERC) claims they sus­pect might be erro­neous.

This ini­tia­tive lets employ­ers who’ve sub­mit­ted ERC claims but haven’t yet got­ten a refund, retract their sub­mis­sions. This action will exempt them from any future repay­ments, inter­ests, and penal­ties asso­ci­at­ed with the claim.

The IRS ini­ti­at­ed this pro­gram in light of busi­ness­es poten­tial­ly being influ­enced by intense pro­mo­tion­al strate­gies to file ERC claims. These busi­ness­es now ques­tion the valid­i­ty of their claims, con­sid­er­ing them pos­si­bly inel­i­gi­ble.

The ERC serves as a reim­bursable tax cred­it designed for com­pa­nies that sus­tained their employ­ee pay­roll dur­ing the COVID19 pan­dem­ic, even when fac­ing sub­stan­tial reduc­tions in rev­enue or under­go­ing a par­tial or total halt in oper­a­tions due to rel­e­vant gov­ern­men­tal direc­tives.

How­ev­er, since its intro­duc­tion, there’s been a surge in inter­me­di­aries overzeal­ous­ly adver­tis­ing this cred­it. These inter­me­di­aries often incor­rect­ly imply that near­ly all com­pa­nies qual­i­fy for the ERC, irre­spec­tive of any gen­uine drop in their earn­ings or legit sus­pen­sions of their busi­ness.

These pro­mot­ers often charge busi­ness­es a por­tion of the expect­ed ERC as their ser­vice fee.

Acknowl­edg­ing these aggres­sive meth­ods, the IRS has been inun­dat­ed with ERC appli­ca­tions. Con­se­quent­ly, they decid­ed to halt the pro­cess­ing of new ERC appli­ca­tions tem­porar­i­ly, extend­ing till the year’s close, and imple­ment strin­gent reviews for exist­ing appli­ca­tions.

Who Is Eli­gi­ble to Retract a Claim?

Employ­ers can request to retract their ERC claim through the IRS’s new method if they meet the fol­low­ing cri­te­ria:

 The ERC claim was made using an adjust­ed employ­ment return (like Forms 941X, 943X, 944X, CT1X).

 The adjust­ed return was sole­ly for the ERC claim with­out any oth­er mod­i­fi­ca­tions.

 The inten­tion is to retract the entire ERC claim val­ue.

 The IRS has­n’t processed the ERC claim, or if they have, the employ­er hasn’t accessed or banked the refund amount.

Note: Those who know­ing­ly sub­mit­ted an erro­neous claim or col­lab­o­rat­ed with oth­ers in such actions will still face penal­ties, with poten­tial legal reper­cus­sions.

Steps to Retract an ERC Claim

To engage in the ERC claim retrac­tion process, tax­pay­ers must adhere to spe­cif­ic guide­lines pro­vid­ed by the IRS. A sum­ma­rized ver­sion is as fol­lows:

 If the ERC claim was filed by pro­fes­sion­al pay­roll firms on behalf of tax­pay­ers, it’s advised to liaise with these firms. Depend­ing on the fil­ing method, the pay­roll firm might need to ini­ti­ate the retrac­tion.

 Self-fil­ing tax­pay­ers who haven’t accessed their refund and aren’t under audit should direct their retrac­tion requests via fax to the IRS.

 For employ­ers who’ve received audit noti­fi­ca­tions, they can for­ward the retrac­tion request to the des­ig­nat­ed exam­in­er or answer the audit noti­fi­ca­tion if no exam­in­er has been allo­cat­ed.

If you need help fig­ur­ing out if you’re eli­gi­ble to claim the ERC, use the Employ­ee Reten­tion Cred­it Eli­gi­bil­i­ty Check­list. If you request to with­draw your claim, you’ll be ask­ing the IRS not to process your entire adjust­ed employ­ment tax return (Form 941‑X, 943‑X, 944‑X, CT-1X) for the tax peri­od that includ­ed your ERC claim.

Claims that are with­drawn will be treat­ed as if they were nev­er filed. The IRS will not impose penal­ties or inter­est.

If you made any oth­er changes on the adjust­ed employ­ment tax return or you only need to reduce your ERC claim (not with­draw it entire­ly), you can’t use the with­draw­al process.

Instead, you need to amend your return. For more infor­ma­tion on these sit­u­a­tions, see the Cor­rect­ing an ERC claim – Amend­ing a return sec­tion of the fre­quent­ly asked ques­tions about the ERC.

Who can ask to with­draw an ERC claim

You can use the ERC claim with­draw­al process if all of the fol­low­ing apply:

• You made the claim on an adjust­ed employ­ment tax return (Forms 941‑X, 943‑X, 944‑X, CT-1X).
• You filed your adjust­ed return only to claim the ERC, and you made no oth­er adjust­ments.
• You want to with­draw the entire amount of your ERC claim.
• The IRS has not paid your claim, or the IRS has paid your claim, but you haven’t cashed or deposit­ed the refund check.

It’s VERY impor­tant to note that if you will­ful­ly filed a fraud­u­lent ERC claim, or if you assist­ed or con­spired in such con­duct, with­draw­ing a fraud­u­lent claim will not exempt you from poten­tial crim­i­nal inves­ti­ga­tion and pros­e­cu­tion.

If you’re find­ing your­self in this sit­u­a­tion, it’s very impor­tant to obtain rep­re­sen­ta­tion as quick­ly as pos­si­ble, and do NOT com­mu­ni­cate with the IRS or any gov­ern­ment agen­cies before doing so.

How to request an ERC claim with­draw­al

You will fol­low dif­fer­ent steps depend­ing on your sit­u­a­tion.

• You haven’t received a refund and haven’t been noti­fied your claim is under audit
• You haven’t received a refund and you’ve been noti­fied your claim is under audit
• You received a refund check but haven’t cashed or deposit­ed it

If you use a pro­fes­sion­al pay­roll com­pa­ny and they filed your ERC claim for you, you should con­sult with them if you want to with­draw your ERC claim.

Depend­ing on how the com­pa­ny filed your claim – indi­vid­u­al­ly or batched with oth­ers – you may need to have them sub­mit your with­draw­al request.

Sec­tion A: You haven’t received a refund and haven’t been noti­fied your claim is under audit

If you filed an adjust­ed return (Form 941‑X, 943‑X, 944‑X, CT-1X) to claim the ERC and you would like to with­draw your entire claim, use the process below. If you filed adjust­ed returns for more than one tax peri­od, you must fol­low the steps below for each tax peri­od for which you are request­ing a with­draw­al.

To request a with­draw­al, fol­low these steps:

1. Make a copy of the adjust­ed return with the claim you wish to with­draw.
    
2. In the left mar­gin of the first page, write “With­drawn.”
    
3. In the right mar­gin of the first page:

• Have an autho­rized per­son sign and date
• Write their name and title next to their sig­na­ture.
   

1. Fax the signed copy of your return using your com­put­er or mobile device to the IRS’s ERC claim with­draw­al fax line at 855–738-7609. This is your with­draw­al request. Keep your copy with your tax records.

 If you can’t fax your with­draw­al request, you can mail it to the address in the instruc­tions for the adjust­ed return that applies to your busi­ness or orga­ni­za­tion. Before doing so you should make a copy of the signed and dat­ed first page to keep for your records.

It will take longer for the IRS to receive your request if you mail it. Track your pack­age to con­firm deliv­ery.

Sec­tion B: You haven’t received a refund and you’ve been noti­fied your claim is under audit

At this point you may want to engage a tax attor­ney, as well as the advi­sor sub­mit­ting the claim(if any) for you, if for noth­ing else, to review your busi­ness and claim before you com­mu­ni­cate with the IRS.

How­ev­er, if you would like to pro­ceed on your own, the IRS instructs the fol­low­ing:

If you’ve been noti­fied that the IRS is audit­ing the adjust­ed return that includes your ERC claim, pre­pare your with­draw­al request using the steps in Sec­tion A, but don’t sub­mit to the with­draw­al fax line or mail it using the address below. Instead:

• If you’ve been assigned an exam­in­er, com­mu­ni­cate with your exam­in­er about how to sub­mit your with­draw­al request direct­ly to them.
• If you haven’t been assigned an exam­in­er, respond to your audit notice with your with­draw­al request, using the instruc­tions in the notice for respond­ing.

Again, I have to stress that you may be well served by dis­cussing the mat­ter with a tax attor­ney or tax pro­fes­sion­al before tak­ing any action.

Sec­tion C: You received a refund check but haven’t cashed or deposit­ed it

1. Pre­pare the claim with­draw­al request using the steps in Sec­tion A, but don’t fax the request.
    
2. Write “Void” in the endorse­ment sec­tion on the back of the refund check.
    
3. Include a note that says, “ERC With­draw­al” and briefly explain the rea­son for return­ing the refund check.
    
4. Make copies for your tax records of the front and back of the void­ed check, the expla­na­tion notes and the signed and dat­ed with­draw­al request page.
    
5. Don’t sta­ple, bend or paper clip the void­ed check; include it with your claim with­draw­al request and mail it to the IRS at:

Cincin­nati Refund Inquiry Unit
PO Box 145500
Mail Stop 536G
Cincin­nati, OH 45250

Track your pack­age to con­firm deliv­ery.

What hap­pens next

The IRS will send you a let­ter telling you whether your with­draw­al request was accept­ed or reject­ed. Your approved request is not effec­tive until you have your accep­tance let­ter from the IRS.

If your with­draw­al is accept­ed, you may need to amend your income tax return. If you need help, seek out a trust­ed tax pro­fes­sion­al. You’re wel­come to reach out to Robert W Law for a review.