Understanding the Employee Retention Credit Withdrawal Program

On October 19, 2023, the IRS unveiled procedures enabling taxpayers to withdraw previously filed claims for the Employee Retention Credit (ERC). This decision followed the suspension of processing new ERC filings on September 14, 2023, as a response to a surge in improper claims since the ERC’s inception in 2020 amid the COVID-19 response. 

The IRS had been consistently cautioning against fraudulent and improper ERC claims over the past year. The September announcement not only suspended ERC claim processing but also hinted at forthcoming settlement and withdrawal programs for those who had filed improper claims. Subsequently, on October 19, 2023, the IRS disclosed the details of the withdrawal program, outlining qualification criteria and procedures for taxpayers looking to retract their ERC claims. 

Qualifying for the ERC Claim Withdrawal Process 

To qualify for the ERC claim withdrawal process, taxpayers must fulfill specific requirements, including: 

1. Making the claim on an adjusted employment return exclusively for the ERC.
2. Desiring to withdraw the entire claim.
3. The IRS not having paid the claim or, if paid, the taxpayer not having cashed or deposited the refund check.

How the Withdrawal Process Works 

The withdrawal process aims to treat the claim as if it had never been filed, mitigating the risk of future repayment, interest, or penalties. Taxpayers can initiate withdrawal through various methods, depending on how they initially filed their ERC claim – either through their payroll provider or directly if they filed the claim themselves. Additionally, those under IRS audit can submit withdrawal requests directly to the IRS examiner. 

This development underscores the IRS’s commitment to address the challenges posed by improper ERC claims and emphasizes the importance of compliance and accuracy in claiming tax credits. As the ERC landscape continues to evolve, taxpayers are urged to stay informed and consider the withdrawal option if they deem their initial claim to be improper. If you suspect that your ERC claim was improperly filed, consult with your tax practitioner to determine the best course of action.