IRS Announces New Protocol for Withdrawing ERC Claims: What Taxpayers Need to Know
The IRS announces that certain businesses that filed a claim for an Employee Retention Credit (ERC) refund can now withdraw those claims to avoid potential penalties and interest
The Employee Retention Credit (ERC) was created to support businesses that continued paying employees during the COVID-19 pandemic. This refundable tax credit provides eligible employers with financial relief, but it’s also become a target for fraudulent activities and erroneous claims.
The Internal Revenue Service (IRS) has recently identified a surge in incorrect ERC claims due to deceptive marketing and promotional scams. With over 22,000 inaccurate claims detected, the IRS has introduced new measures to tackle this growing problem.
Among these measures is a moratorium on processing new ERC claims, along with stricter audits for pending claims. This requires taxpayers to submit additional documentation to prove their eligibility for the ERC. Additionally, to protect well-intentioned employers from penalties and interest due to false claims, the IRS has established a process for withdrawing ineligible ERC claims without facing civil or criminal penalties.
IRS ERC claim withdrawal process
While the IRS started accepting withdrawal claims in October 2023, they have not yet announced the end of the program. Until the program ends, the eligible employers can withdraw the ERC claims.
Who are all eligible to withdraw the ERC claims?
To be eligible to withdraw the ERC claim, employers must meet all of the following criteria
- Employers must have claimed ERC using an adjusted employment return, i.e. Forms 941-X, 943-X, 944-X, or CT-1X
- The ERC must be the only adjustment claimed on the return
- The employer must withdraw the entire amount of the ERC claim (this refers to each calendar quarter, rather than all calendar quarters, for which an ERC claim was made)
- The IRS has not paid their claim, or the IRS has paid the claim, but the employers haven’t cashed or deposited the refund check.
It’s important to note that employers who willfully file fraudulent ERC claims, or those who assisted or conspired in such fraudulent conduct, are not protected from criminal investigation or prosecution, even if they withdraw the false claims.
What if an employer is Not Eligible to Withdraw the Claim?
Employers who are ineligible to withdraw an ERC (Employee Retention Credit) claim, either because they don’t meet one of the required criteria or have already cashed the refund check, can adjust, reduce, or eliminate the ERC amount by filing a Form 941-X. For more information, refer to the “Amending a Return” section in the IRS’s Frequently Asked Questions About the Employee Retention Credit.
How to withdraw an ERC claim?
The IRS has specific instructions to withdraw the ERC claims depending on the various scenarios.
Scenario 1: If the employee hasn’t received a refund and hasn’t been notified your claim is under audit
If the employer has filed the adjusted return (Form 941-X, 943-X, 944-X, CT-1X) to claim the ERC and you would like to withdraw their entire claim, follow the steps below
Make a Copy of the Adjusted Return:
- Make a copy of the adjusted return with the claim you wish to withdraw (Forms 941-X, 943-X, 944-X, CT-1X).
Indicate “Withdrawn”:
- Write “Withdrawn” in the left margin of the first page.
Signature and Identification:
- In the right margin of the first page, have an authorized person sign and date it.
- Next to the signature, write the person’s name and title.
Submit the Withdrawal Request:
- Fax the signed copy of the return to the IRS’s ERC claim withdrawal fax line at 855–738–7609. Make sure to retain a copy for your tax records.
Note: This fax line is only for ERC claim withdrawals. Other documents sent here will not be processed.
Alternative: Mailing the ERC Withdrawal Request
If employers can’t fax the withdrawal request, they can mail it to the address in the instructions for the adjusted return that applies to their business or organization. Before sending it, make a copy of the signed and dated first page for your records.
Scenario 2: If the employers haven’t received a refund and have been notified of an audit
If the IRS has notified employers that they are auditing the adjusted returns containing the ERC claim, employers can still withdraw the ERC claim by following the same procedure as in Scenario 1. However, instead of faxing to the general withdrawal line, employers should contact the IRS examiner handling their case to find out how to fax or mail the withdrawal request directly to the examiner. If an examiner hasn’t been assigned, employers should respond to the audit notice with the withdrawal request, using the instructions provided in the notice.
Scenario 3: Employers who received a refund check but haven’t cashed or deposited it
Employers who have received a refund check but haven’t cashed or deposited it can still withdraw their ERC claim. Here’s what you need to do:
1. Prepare the Withdrawal Request:
- Follow the same steps as in Scenario 1, but do not fax the request.
2. Void the Refund Check:
- Write “Void” in the endorsement section on the back of the check.
3. Include a Note and Additional Documentation:
- Include a note with the words “ERC Withdrawal” and a brief explanation for returning the refund check.
- Make copies of the front and back of the voided check, the explanation note, and the signed and dated withdrawal request.
4. Mail the Withdrawal Request:
- Do not staple, bend, or paperclip the voided check.
- Send it along with your withdrawal request to the following address:
Cincinnati Refund Inquiry Unit
PO Box 145500
Mail Stop 536G
Cincinnati, OH 45250
Scenario 4: If a Professional Payroll Company Filed the ERC on Your Behalf
If a professional payroll company filed the ERC on the employer’s behalf, the taxpayer should reach out to the professional payroll company to initiate the withdrawal.
What’s Next?
After submitting your withdrawal request, the IRS will send a letter indicating whether it has been accepted or rejected. The withdrawal is not effective until you receive a letter of acceptance from the IRS. If the withdrawal request is accepted, employers might need to amend their income tax return to reflect the change.
Wrapping up
The new IRS protocol for withdrawing ERC claims is a critical step toward addressing the surge in fraudulent activities related to the Employee Retention Credit. With stricter audits, a moratorium on new claims, and a clear process for withdrawing ineligible claims, the IRS aims to safeguard honest taxpayers from unnecessary penalties and combat fraudulent schemes.
TaxBandits has been fighting against fraudulent practices and is committed to helping clients navigate these new measures with clarity and confidence. As the IRS continues its crackdown on erroneous ERC claims, partnering with trusted tax professionals like TaxBandits can provide businesses with the guidance and protection they need in this evolving landscape.
