Authored by RSM US LLP
The IRS announced a simplified method for employers to withdraw an unpaid ERC claim and avoid potential penalties and interest if they now believe they are ineligible for the claim. Employers can withdraw by fax. Employers who already received an ERC refund but believe they were misled into claiming it will have access to an additional program to be announced this fall. IRS encourages employers to consult with “a trusted tax professional who understand the complex ERC eligibility rules, not a promoter or marketer trying to get a hefty.
The IRS is offering a method for employers who filed a claim requested a refund for the Employee Retention Credit (ERC) and now believe they may not be eligible for the ERC to withdraw their claim. The method is available only to those who have not yet received a refund and whose claim is currently in process with the IRS. Withdrawing the claim before any refund is issued will allow employers to avoid future repayment of invalid refunds and potential penalties and interest.
Only employers who meet all the following criteria can request withdrawal of an ERC claim via the new option:
An employer who does not meet all of the above criteria can reduce or eliminate its ERC claim only by filing an amended return.
Employers who have not yet received an ERC refund and wish to withdraw their claim are instructed to make a copy of the adjusted return (Form 941-X) they wish to withdraw and write “Withdrawn” in the left-hand margin of the first page. In the right-hand margin, an authorized person must sign, with printed name and title and date the page. Fax the signed copy to the dedicated fax line at (855) 738-7609. If an employer cannot fax their request, they may mail a copy of the adjusted return, marked as described above, to the IRS address for filing adjusted returns applicable to their business or organization.
Employers must follow this process for each tax period for which they wish to withdraw a claim. For example, if an employer has claimed ERC for the second, third and fourth quarters of 2020 but now believes they only meet eligible for the second quarter, they will need to fax copies of their Forms 941-X withdrawing the claim for both the third and fourth quarters of 2020.
Employers who filed their claim through a professional payroll company, such as a CPEO, PEO or Section 3504 agent, and want to withdraw the claim will need to contact the entity that filed the claim on their behalf.
Employers that haven’t received an ERC refund and have received an IRS audit notification can still withdraw but will need to coordinate doing so with the IRS examiner assigned to their examination or by faxing a claim withdrawal request as described above in response to the audit notice, using the instructions in the notice for responding.
Employers who received a refund check but have not cashed or deposited it can still withdraw their claim by preparing a claim withdrawal request as described above and mailing, with tracking, the withdrawal request along with the voided check and a note that says “ERC Withdrawal” to the following address:
Employers who withdraw their claim through this process are asking the IRS not to process the entire adjusted employment tax return. Employers who made other adjustments on a claim or who are seeking only to adjust the amount of ERC claimed will need to file an adjusted employment tax return or Form 941-X. Claims that are withdrawn will be treated as if they were never filed, and the IRS will not assess penalties or interest. However, the IRS warned that businesses that willfully filed fraudulent claims or assisted in such conduct will not be exempt from potential criminal investigation and prosecution by using the withdrawal process.
Employers who utilize the withdrawal process will get a letter from the IRS about whether their request was accepted or rejected. Employers are encouraged to consult with a trusted tax professional about whether they may need to amend their income tax return.
Employers who claimed ERC and already received a refund are not eligible for the ERC withdrawal process. However, the IRS announced that guidance for employers who were misled into claiming ERC and now believe they were ineligible will be announced this fall.
The IRS continues to emphasize its concerns with aggressive marketers and scammers, noting that some have responded to the recently announced ERC processing moratorium with even more aggressive pitches pushing employers into agreeing to costly up-front loans in anticipation of a refund. The IRS encourages employers to learn the warning signs of ERC scams and consult with a trusted tax professional.
This article was written by Alina Solodchikova, Anne Bushman, Karen Field , Marissa Lenius and originally appeared on 2023-10-19.
2022 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Call us at (800) 624-2400 or fill out the form below and we’ll contact you to discuss your specific situation.
Weinlander Fitzhugh is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Weinlander Fitzhugh can assist you, please call (989) 893-5577.