What has transpired with the Employee Retention Credit (ERC), and how did we reach this point?

Since the introduction of the ERC amid the flurry of COVID-19 response activities in 2020, the ERC has faced an unusually high number of incorrect filings, prompting a series of noteworthy responses from the IRS. Throughout the past year, the IRS has consistently issued warnings concerning fraudulent and improper ERC claims.

In a bold move that has sent shockwaves through the financial world, the IRS has taken a drastic step to curb the influx of dubious Employee Retention Credit (ERC) claims. In response to a mounting tide of dubious filings, the tax agency has implemented a moratorium on new claims, effectively halting the acceptance of such claims until the conclusion of 2023.

After that, on October 19, 2023, the IRS announced (IR-2023-193) a formal procedure for withdrawing Employee Retention Credit (ERC) claims. This withdrawal process aligns with the
earlier IRS announcement (2023-169) on September 14, 2023, which declared an immediate halt to the processing of new ERC claims and an intensified scrutiny of pending ERC claims. These recent developments stem from IRS concerns about an inundation of improper ERC claimssubmitted by ineligible businesses misled by aggressive promoters.

If you have submitted a claim seeking a refund for an Employee Retention Credit (ERC or ERTC) and now wish to retract your claim, this page will guide you on whether withdrawal is possible and, if so, the steps to follow in withdrawing your claim.

Withdrawal process

The IRS recently announced a limited-application withdrawal process for employee retention credit (ERC) claims, providing an opportunity for specific employers who have filed a claim
but have not yet received a refund to retract their submission. This allows them to sidestep potential future obligations for repayment, interest, and penalties. Employers with ERC claims still in the processing stage can opt to withdraw, preventing the disbursement of ineligible refunds. Furthermore, those who have received a refund check but have not yet cashed or deposited it can also avail themselves of the withdrawal process.

Who is eligible for the ERC claim withdrawal process?

If you realize that you should not have filed an ERC claim, you can now utilize the ERC claim
withdrawal process. To qualify for this withdrawal process, an employer must satisfy the following requirements:

1. They submitted the claim using a modified employment return (Forms 941-X, 943-X, 944-X, CT-1X).
2. The adjusted return was filed solely for claiming the ERC, with no other changes made.
3. They wish to retract the entire amount of their ERC claim.
4. The IRS has either not issued their claim payment, or if they have, the refund check remains uncashed or undeposited.

How to utilize the processes?

Taxpayers should carefully follow the instructions provided at https://www.irs.gov/newsroom/withdraw-an-employee-retention-credit-erc-claim

In summary:

1. If their ERC claim was filed by a professional payroll company, it’s advisable to coordinate with the payroll company, as they may need to initiate the withdrawal request.
2. For those who filed their ERC claims independently, have not received, cashed, or deposited a refund check, and have not been notified of an audit, the recommended approach is to fax withdrawal requests to the IRS using a designated fax line created for this purpose. This ensures that the IRS halts processing before the refund gets approval.
3. If taxpayers have been notified of an audit, they can either send the withdrawal request to the designated examiner or respond to the audit notice if no examiner has been assigned.

For those who have received a refund check but have not cashed or deposited it, withdrawing the claim is still possible. They should mail the voided check along with their withdrawal
request following the instructions provided at IRS.gov/withdrawmyerc.

When the program ends.

Regarding the conclusion of the program, the IRS shared informally during its webinar on November 2, 2023, that they are considering sunsetting the program. However, they haven’t
finalized a specific date yet, mentioning that the withdrawal program’s fate might hinge on the timing of other initiatives.

With over 3.6 million ERC claims filed in the program’s 2.5-year existence, the withdrawal program appears to have a limited scope. It primarily caters to those who recently submitted claims or have yet to cash or deposit ERC refund checks. It seems designed to streamline the processing of the existing 600,000-plus ERC claims. For individuals ineligible for the withdrawal program because they’ve already cashed or deposited their refund, the IRS is developing separate guidance to assist those who were misled by credit mills or aggressive promoters. Further details are anticipated later in the year.

Taxpayers with pending ERC claims or uncashed/undeposited ERC refund checks should seek advice from their tax advisor to assess whether the withdrawal program is suitable for them. This is especially crucial for those who utilized an ERC promotion service and haven’t had their ERC eligibility reviewed yet.

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