The Internal Revenue Service (IRS) has introduced a solution for employers to retract inaccurate Employee Retention Credit (ERC) claims, typically resulting from aggressive promotions by deceptive "ERC mills." This response follows the IRS's suspension of new ERC claims processing due to a significant influx, propelled by misleading advertisements promoting easy federal government money.
This novel withdrawal mechanism allows eligible employers who have filed for the ERC but not yet received a refund to cancel their claims. This step helps them avoid potential repayment, interest, and penalties. Employers whose ERC claims are still in process can also withdraw to prevent receiving ineligible refunds. Withdrawn claims will be treated as never filed, with no ensuing penalties or interest charged. However, the IRS warns that fraudulent filings and collaborations in such fraud will not be overlooked and may lead to criminal charges.
IRS Commissioner Danny Werfel emphasizes the agency's commitment to supporting businesses misled by aggressive ERC marketing. He advises businesses to consider the withdrawal option carefully and consult with trustworthy tax professionals, not marketing firms, for guidance on this complex credit. Employers can opt for the withdrawal process if:
They claimed the ERC on adjusted employment returns (Forms 941-X, 943-X, 944-X, CT-1X).
The claim was solely for the ERC, without other adjustments.
They seek to withdraw their entire ERC claim.
The IRS hasn't paid the claim, or if paid, the refund check hasn’t been cashed or deposited.
Those ineligible for withdrawal should file an amended return to adjust or eliminate their ERC claim. If a professional payroll company filed the claim, they might need to handle the withdrawal. Self-filers who haven’t received or deposited refund checks and are not under audit should fax their withdrawal requests to the IRS, while others may need to mail their requests, albeit with slower processing.
Employers notified of an audit can direct withdrawal requests to their examiner. If they received but haven’t cashed a refund check, they should mail a voided check and withdrawal request per IRS guidelines. The IRS is also hosting a webinar on November 2, detailing the ERC moratorium and related withdrawal or correction procedures, with a recorded version available later. Devin Tenney of Baker Tilly and former IRS commissioners Eric Hylton and others have praised the IRS's initiative. They see it as a crucial step in safeguarding small businesses from ERC-related tax fraud by inexperienced firms.
Furthermore, the IRS has updated its resources to help taxpayers determine ERC eligibility, including a new interactive feature on the IRS website. However, they caution against new deceptive tactics from marketers, such as urging costly loans based on expected ERC refunds. Taxpayers are advised to avoid such loans and stay vigilant against ERC scams.
Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued on an almost daily basis regarding the ERC and PPP, and we are happy to assist you in the process. We are available to simply answer a quick question or assist in the application and/or refund process. Contact us today.