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10/23/2023
IRS announces voluntary ERC claims withdrawal process
The IRS has been warning both tax practitioners and the public of its significant concern that certain employers may have claimed Employee Retention Credits (ERCs) for which they were not technically eligible, often on the basis of overly aggressive positions taken by consultants engaged by them to assist in the ERC process. The IRS has now announced a formal process to permit certain employers that claimed ERCs to voluntarily withdraw their claims.
Eligible employer
To be eligible, an employer that wishes to withdraw its previously filed ERC claim must meet each of the following requirements:
- The ERC claim was made by the amendment of a previously filed employment tax return by filing Form 941-X, 943-X, 944-X, or CT-1X.
- The form was filed solely to claim an ERC, with no other adjustments.
- The request is to withdraw the entire ERC claim.
- The ERC amount claimed has not been paid, or if it has been paid, the refund check received has not been cashed or deposited.
An employer that already deposited or cashed its refund check, and/or made other changes on its amendment form, and/or only wishes to reduce its ERC claim rather than withdraw it completely, cannot use this process and instead must refile.
Procedure for requesting an ERC withdrawal
The IRS has outlined specific instructions for withdrawing ERC claims.
Different procedures for withdrawal apply as follows:
- No refund check or notice of IRS ERC audit has been received.
- No refund check has been received but notice of an IRS ERC audit has been received.
- A refund check was received but it was not cashed or deposited.
No refund check or notice of IRS ERC audit has been received
For each quarter for which a withdrawal is requested:
- Make a copy of the form that was filed to claim the ERC.
- On Page 1 of the copy, write “Withdrawn” in the left margin. (The IRS example shows “Withdrawn” written vertically in large letters in the left margin.)
- Also on Page 1, in the right margin, have an “authorized person” hand-write their name and title, then sign and date it. (The IRS example shows all of the words, signature, and date written vertically in large letters in the right margin.)
- Fax the form to the IRS’s ERC claim withdrawal fax line at 855.738.7609. (Forms can also be mailed, but will then take longer to be processed.)
The IRS defines an “authorized person” who can sign the withdrawal request for each type of employer or employer representative as follows:
- Sole proprietorship – The individual who owns the business.
- Corporation (including an LLC treated as a corporation) – President, vice president, or other principal officer duly authorized to sign.
- Partnership (including an LLC treated as a partnership) – A responsible and duly authorized member, partner, or officer having knowledge of its affairs.
- Single member LLC – Owner of the LLC or a principal officer duly authorized to sign.
- Trust or estate – Applicable fiduciary.
- Forms can also be signed by “a duly authorized agent of the taxpayer (i.e., an individual with valid power of attorney via Form 2848, Power of Attorney and Declaration of Representative, or a reporting agent with Form 8655, Reporting Agent Authorization).”
No refund check has been received but notice of an IRS ERC audit has been received
The employer should use the same procedure as detailed above, except that instead of faxing or mailing a request, if an IRS examiner has been assigned to the audit, the employer should communicate with the examiner about how to fax or mail its withdrawal request directly to them. If an examiner has not yet been assigned, the employer should respond to the audit notice with its withdrawal request, using the instructions in the audit notice for responding.
A refund check was received but it was not cashed or deposited
The same procedure as the first listed above should be used, except that the withdrawal request is to be mailed to the IRS (certified mail is suggested) rather than faxed. In addition:
- “Void” should be written in the endorsement section on the back of the refund check, which should be included in the envelope and should not be stapled, bent, or attached with a paper clip.
- A note should be included labeled “ERC Withdrawal” with a brief explanation of the reason the refund check is being returned.
- Mailing address: IRS, Cincinnati Refund Inquiry Unit, P.O. Box 145500, Mail Stop 536G, Cincinnati, OH 45250
What’s next?
The IRS states that it will respond in writing to the employer’s withdrawal request as to whether the request was accepted or rejected. An approved withdrawal request will not be effective until the IRS acceptance letter is received.
What does CohnReznick think?
If eligible as described above, an employer that is not confident that its prior ERC claim was valid, and therefore is rightfully fearful of an IRS audit and possible penalties and compliance actions, can now request a withdrawal of its claim via a relatively simple process. For an employer that already received an ERC and deposited or cashed the refund checks, the IRS has advised that it is also preparing a “settlement program” that will permit these employers to avoid penalties and future compliance actions by repaying their ERC amounts to the government. We will share updates as they become available.
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Dana Fried, JD, LLM, Managing Director, National Tax Services
516.417.5064
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Dana Fried
JD, LLM, Managing Director - National Tax Services
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