Taxpayers who filed for the employee retention tax credit (ERTC) but now believe they could be ineligible may now be able to file a request to withdraw their claim.
On September 14, 2023, the IRS announced a moratorium for processing new ERTC refund claims due to rising concerns about improper filings. This pause followed a July 26, 2023, announcement that the IRS was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims.
The IRS estimates hundreds of criminal cases are in process, and thousands of ERTC claims have been referred for audit.
IRS Response to Potential Scams
As part of a larger effort to protect small businesses and organizations from scams, on October 19, 2023, the IRS announced details of a withdrawal process to help those who filed an ERTC claim and are concerned about its accuracy.
The new withdrawal opportunity allows employers that filed an ERTC claim, but have not yet received or deposited a refund, to withdraw their submission and avoid future repayment, interest, and penalties if they believe the claim was ineligible.
Claims that are withdrawn will be treated as if they were never filed. However, it should be noted that withdrawing a claim will not exempt those who willfully filed or assisted in filing a fraudulent claim from potential criminal investigation or prosecution.
Who Is Eligible to Withdraw an ERTC claim?
Employers can use the ERTC withdrawal process if all the following apply:
- The claim was made on an adjusted employment return; Forms 941-X, 943-X, 944-X, CT-1X
- The adjusted return was filed only to claim the ERTC, and no other adjustments were made
- The employer wishes to withdraw the entire amount of their ERTC claim
- The IRS has not paid the claim, or the IRS has paid the claim, but the employer hasn’t cashed or deposited the refund check
The IRS specified that employers who don’t meet the requirements for the new withdrawal process can still reduce or eliminate their ERTC claim by filing an amended employment return. Additionally, the IRS indicated it’s also working on guidance to help employers that were misled into claiming the ERTC and have already received the payment and cashed or otherwise deposited the check. More details will be available this fall.
Next Steps
Provided an employer meets the above requirements, the IRS has identified three processes that may be followed to withdraw the previously submitted ERTC claims. The precise process to follow may change depending on the specific facts of the company, as outlined in the three scenarios presented below. Specific details can also be found on the IRS website.
The process of submitting a claim withdrawal request varies slightly for each of these scenarios:
- Employer hasn’t received a refund and the IRS didn’t send notification of an audit
- Employer hasn’t received a refund and the IRS sent notification of an audit
- Employer received the refund, but the check wasn’t cashed or deposited
After a claim is submitted, the IRS will send a letter to employers indicating if the withdrawal request was accepted or rejected.
Employers that filed their ERTC claim through a professional payroll company and want to request a claim withdrawal will need to contact the company that filed the ERTC claim on their behalf.
These companies may include a certified professional employer organization, professional employer organization or other Section 3504 agents.
We’re Here to Help
To learn more about how the ERTC could impact your business, contact your Moss Adams professional.