IRS Releases Details for Employee Retention Credit Claim Withdrawal Process

Over the past several months, the IRS has increased their scrutiny of Employer Retention Credit (ERC) claims. As part of this campaign, the IRS recently announced a moratorium on processing new ERC claims. Pending claims will be subject to more stringent audit procedures, and taxpayers may be required to provide additional documentation to support their positions. The IRS also advised taxpayers who believe they may have claimed the credit improperly that they would be able to withdraw these claims. The IRS has now released details on the withdrawal process for these taxpayers. 

Who May Withdraw a Claim?

Taxpayers will be allowed to withdraw their ERC claims provided they meet all of the following requirements:

• The ERC claim was made on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X),
• The adjusted return was filed solely to claim the ERC,
• The entire amount of the ERC claim is being withdrawn, and
• The IRS has not paid the claim, or the recipient has not cashed or deposited the refund check.

ERC claims filed on an original employment tax return are not eligible for withdrawal.  In addition, taxpayers that have already received a notice or letter from the IRS disallowing the ERC may not use the withdrawal program. Finally, taxpayers with partial ERC withdrawals are ineligible and would need to file amended returns to correct their claims.

How to Withdraw a Claim

Taxpayers will have a different withdrawal process depending on their situation. In all situations, taxpayers should keep copies of the withdrawal requests for their records. Taxpayers who have filed multiple adjusted returns must make a separate withdrawal request for each tax period for which they wish to withdraw their claim. 

Situation 1: Taxpayers Who Have Not Received a Refund and Whose Claim Is Not Under Audit

These taxpayers may withdraw their claims by faxing or mailing a copy of the adjusted returns with the claims they want to withdraw to the IRS. Taxpayers should write “withdrawn” on the left margin of the first page of the adjusted return. On the right margin of the first page, an authorized person must sign and date the copy and write their name and title next to their signature.  

Situation 2: Taxpayers Who Have Not Received a Refund but Whose Claim Is Under Audit

Taxpayers in this situation may withdraw their claims using a similar process as taxpayers who are not under audit. If they have been assigned an examiner, they should communicate with their examiner about how to submit the withdraw request directly to them. If they have not been assigned an examiner, they should respond to their audit notice with their withdraw request.

Situation 3: Taxpayers Who Have Received but Not Cashed a Refund Check

Taxpayers who have not yet cashed or deposited a refund check may still withdraw their claims. They will generally follow the same steps as taxpayers who have not received a refund check and are not under audit, but they must mail their request. The same information must be written along the sides of the return. Taxpayers must include the refund check with the withdrawal request. The refund check must be voided by writing “void” on the endorsement section on the back of the check. (Taxpayers should make a copy of both sides of the voided check for their records.) Taxpayers must include a note that says “ERC Withdrawal” along with a brief explanation of why they are returning the check. The withdrawal request must be mailed to the IRS Refund Inquiry Unit in Cincinnati. 

Situation 4:  Taxpayers Who Have Received and Cashed a Refund Check

The IRS intends to release details on a future ERC Settlement Program for taxpayers who have received and already cashed a refund check related to an ERC claim which they now believe was received in error. These taxpayers are not eligible to participate in the withdrawal program.

ERC Claims Filed Through Payroll Companies

Taxpayers who used a professional payroll company to file ERC claims on their behalf are advised to consult with the payroll company if they wish to withdraw a claim. They may need the payroll company to submit the withdrawal request.

After Submitting the Withdrawal Request

Taxpayers will be notified by letter if their withdrawal request is accepted or rejected. For accepted requests, taxpayers may need to amend their income tax returns to reflect any adjustments. Taxpayers are advised that they should not consider their request approved until they receive formal acknowledgement of acceptance from the IRS. 

The withdrawal program is not expected to be open indefinitely. Therefore, taxpayers who believe they may have filed improper ERC claims should take advantage of the opportunity to withdraw these claims as soon as possible. A trusted tax advisor should be consulted to confirm eligibility for ERC claims and that taxpayers use the correct withdrawal process for their situation.