IRS announces ERC claim withdrawal process

Executive summary

The IRS recently announced a limited-application withdrawal process for employee retention credit (ERC) claims, allowing certain employers that filed a claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that's still being processed can withdraw it and avoid the possibility of getting a refund for which they're ineligible. Additionally, employers that have received a refund check but have yet to cash or deposit it may also utilize the withdrawal process.

Key takeaways

• The IRS is permitting taxpayers who have an outstanding ERC claim, as well as those who have received but yet to cash or deposit refund checks, to withdraw their ERC claim via one of three simple processes and be treated as if their claims “were never filed.”
• The withdrawal process allows taxpayers to avoid interest, penalties and litigation fees. However, those who filed or participated in the filing of a fraudulent claim may still face potential criminal investigation and prosecution even if the claim is withdrawn.
• There are three withdrawal methods, with the appropriate method depending on the taxpayer’s specific facts, such as whether they have already received a check or are currently under IRS audit.
• The IRS stated they are working on guidance to help employers that were misled into claiming the ERC and have already received the payment with more details anticipated later this year,
• Taxpayers eligible for this withdrawal program are strongly encouraged to consult a trusted tax professional to determine whether they should consider pursing a withdrawal.
• The announcement does not provide any updates on the timing for the IRS’ potential lifting of its moratorium on processing new ERC claims, that “will last until at least the end of this year,” nor does it expressly state when the withdrawal program will expire.
• The IRS, during its Nov. 2, 2023 webinar, informally announced the withdrawal program will sunset at a yet to be determined date, possibly at the end of the moratorium.

Withdrawal process

On the one-year anniversary of the IRS’s initial ERC warning and a little over a month after the IRS issued a moratorium on the processing of new ERC claims (see our previous Tax Alert), the IRS provided guidance on an ERC claim withdrawal process available to certain, but limited, taxpayers.

Who is eligible. Taxpayers can utilize the withdrawal option “if all of the following apply:

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

How to utilize the processes. Taxpayers should carefully follow the instructions at IRS.gov/withdrawmyerc. In brief, taxpayers:

• Whose professional payroll company filed their ERC claim should consult with the payroll company, as the payroll company may need to initiate the withdrawal request.
• Who filed their ERC claims themselves, haven't received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS at a special fax line specifically set up to receive them. This enables the IRS to stop processing before the refund is approved.
• Who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check (but haven't cashed or deposited it) can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.

When the program ends. The IRS, during its Nov. 2, 2023 webinar, informally provided that they “do anticipate to sunset the program” but that they “don’t have the date nailed down yet.” The IRS further elaborated that the withdrawal program “could sunset at the end of the moratorium, but that depends on the timing of other programs.”

With approximately 3.6 million ERC claims filed in the over 2.5 years of the ERC’s existence, the withdrawal program seems to have limited scope as it only permits those who’ve recently filed claims or have yet to cash or deposit ERC refund checks. It seems the program was designed to pare down the existing number of ERC claims being processed, which number over 600,000. For those taxpayers ineligible for the withdrawal program on account of having cashed or deposited their refund, the IRS is also working on separate guidance to help those that were misled into making their claim by a credit mill or aggressive promoter. More details are expected later this year.

Taxpayers with ERC claims currently pending with the IRS or those with uncashed or undeposited ERC refund checks should consult their tax advisor to determine whether they should utilize this withdrawal program. This is especially important for taxpayers that utilized an ERC promotion service and have not yet had their ERC eligibility reviewed. 

For more information on this topic, or to learn how a Baker Tilly specialist can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.