In response to the growing challenges faced by small business owners and individuals misled by ERC marketers or promoters, the IRS has introduced a withdrawal option to alleviate the burden on those who filed ineligible Employee Retention Tax Credit (ERC) claims. This article provides essential insights into the withdrawal process, potential criminal implications, and guidance on ensuring the legitimacy of ERC claims.
Understanding the ERC and the Withdrawal Option
The Employee Retention Tax Credit (ERC) is a refundable payroll tax credit tailored for businesses that continued to pay employees during specific COVID-19 pandemic periods when operations were fully or partially suspended, or there was a significant decline in gross receipts. To counter aggressive marketing tactics and fraudulent claims, the IRS has instituted a withdrawal option, treating withdrawn claims as if they were never filed, without imposing penalties or interest.
Potential Criminal Investigation and Prosecution
While the withdrawal option offers relief to those pressured into filing ineligible claims, it’s crucial to note that individuals who willfully submitted fraudulent claims may still face potential criminal investigation and prosecution, even if they choose to withdraw. The IRS emphasizes the importance of exercising caution and recommends consulting trusted tax professionals instead of relying on marketing companies.
ERC Claim Withdrawal Criteria
Employers can utilize the ERC claim withdrawal process if they meet the following criteria:
- The claim was made on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
- The adjusted return was filed solely for claiming the ERC, with no other adjustments.
- The entire ERC claim amount is to be withdrawn.
- The IRS has not paid the claim, or if paid, the taxpayer hasn’t cashed or deposited the refund check.
For those ineligible for the withdrawal process, the option to reduce or eliminate their ERC claim through an amended return is available.
Step-by-Step Withdrawal Process
To initiate the ERC claim withdrawal, follow these steps:
- Review the special instructions at IRS.gov/withdrawmyERC .
- If a professional payroll company filed the ERC claim, consult with them for assistance.
- Taxpayers filing claims themselves, without a refund check or audit notice, can fax withdrawal requests using a computer or mobile device. An IRS-dedicated fax line has been established for this purpose.
- If faxing is not feasible, mailing the withdrawal request is an option, although it may take longer for the IRS to process.
- Employers under audit can submit withdrawal requests to the assigned examiner or respond to the audit notice.
- For those with refund checks not cashed or deposited, mail the voided check with the withdrawal request following instructions at IRS.gov/withdrawmyERC.
Seeking Professional Guidance
If there are concerns about the validity of a submitted ERC claim or if assistance is needed with withdrawing a claim, contacting a trusted tax professional is highly recommended.
By understanding the ERC withdrawal process and adhering to the provided guidelines, businesses can navigate potential pitfalls and ensure compliance with IRS regulations, promoting a more secure and transparent financial landscape.