The Internal Revenue Service (“IRS”) recently granted employers a means to avoid interest and penalties on inappropriately taken Employee Retention Tax Credit (“ERC”) claims.[1] This surely will come as a relief to taxpayers who are (or were) concerned that they may have mistakenly claimed ERCs for tax years 2020-2022.
As we detailed in our last article on the ERC, the IRS has made enforcement of ERC fraud its number one priority due to rampant abuse of the ERC program and numerous instances of consultants, tax preparation companies, and fraudulent actors encouraging taxpayers to work with them (for a fee) to claim large amounts of ERC credits.[2] Indeed, in response to ERC abuse, hundreds of criminal cases have been opened and thousands of claims referred for audit.[3]
On October 19, the IRS announced a process by which certain employers may withdraw ERC claims which they believe might have been made by mistake,[4] and hosted a webinar on the same on November 2 for tax professionals. Even if a claim is being processed, eligible employers may withdraw those claims and thereby avoid future repayment, interest, and penalties on inappropriately claimed credits. Claims withdrawn this way will be treated as though they were never filed. This will not, however, exculpate fraudulent claims or those who encouraged or assisted such claims.
The IRS has stipulated that only employers who meet all of the following requirements may use the withdrawal process:
- 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.[5]
It is important to note that a withdrawal is only effective as of the date of the acceptance letter that the IRS will send if they accept a withdrawal.[6]
The IRS did not publish an intended sunset date when it announced the ERC withdrawal program. However, in its recent webinar, the IRS revealed that it anticipates the program will not last forever.
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[1] IRS, IR-2023-193 (Oct. 19, 2023), https://www.irs.gov/newsroom/irs-announces-withdrawal-process-for-employee-retention-credit-claims-special-initiative-aimed-at-helping-businesses-concerned-about-an-ineligible-claim-amid-aggressive-marketing-scams.
[2] See id.
[3] See supra note 1.
[4] See supra note 1. See also IRS, Withdraw an Employee Retention Credit (ERC) claim, https://www.irs.gov/newsroom/withdraw-an-employee-retention-credit-erc-claim (last updated Oct. 24, 2023).
[5] See supra note 1.
[6] See IRS, Withdraw an Employee Retention Credit (ERC) claim, https://www.irs.gov/newsroom/withdraw-an-employee-retention-credit-erc-claim (last updated Oct. 24, 2023).
