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IRS Launches ERC Withdrawal Process to Help Mill Victims

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WASHINGTON — The Internal Revenue Service has announced a new ERC withdrawal process to help businesses that submitted improper Employee Retention Credit claims. The process allows certain businesses that claimed the ERC but are now uncertain about their eligibility to withdraw the claim and avoid any potential penalties or interest.

The announcement follows the IRS’ Sept. 14 decision to temporarily pause ERC processing until December 31, 2023, due to a flood of improper claims filed through third-party promoters that convinced ineligible companies to claim the credit. The withdrawal process is intended to help honest business owners who were misled by these third-party “ERC mills,” as the IRS will not levy tax penalties for withdrawn ERC claims. Withdrawing a claim that was made with willful fraudulence, however, may still result in civil or criminal fraud investigations and prosecutions, if appropriate.

The new ERC withdraw process is available to business owners who filed for ERC but have not yet received a refund and businesses that have yet to cash their refund checks.

“The IRS is committed to helping small businesses and others caught up in this onslaught of Employee Retention Credit marketing,” said IRS Commissioner Danny Werfel. “The aggressive marketing of these schemes has harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. We want to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and we encourage them to closely review the withdrawal option and the requirements.”

Who Can Request to Withdraw ERC?

As stated on the IRS website, employers can use the ERC claim withdrawal process if all of the following apply:

  • They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
  • They filed the adjusted return only to claim the ERC, and they made no other adjustments.
  • They want to withdraw the entire amount of their ERC claim.
  • The IRS has not paid their claim, or the IRS has paid the claim, but they haven’t cashed or deposited the refund check.

Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return to reverse the claim.

What the ERC Withdraw Option Means for Business Owners

Withdrawing the claim allows businesses that may have filed improper or false claims to avoid tax penalties, interest payments, and the headache of an IRS audit. However, a lot of money is on the line. Depending on the size of the business, ERC claims can provide tax refunds worth thousands or even millions of dollars. Business owners who made legitimate claims should not have to forfeit significant tax refunds they truly qualify for. However, the ERC is a complex tax credit, and being certain about your eligibility status can be difficult without expert advice from a qualified tax professional.

Be Certain About Your Eligibility Before Requesting ERC Withdrawal 

Business decision-makers can reevaluate their ERC filing using the IRS’ new Eligibility Checklist and determine if they may not qualify for the credits they claimed. However, tax professionals agree the IRS checklist does not provide sufficient quantitative analysis to make a definitive determination on your quarterly eligibility status. To help business owners make a better-informed decision, Omega provides a comprehensive ERC Compliance Review to assess existing ERC claims for compliance with IRS eligibility rules on a quarter-by-quarter basis.  Our review report will identify any potential liabilities or errors in your ERC claims and recommend ways to solve those problems, which could include filing amended claims, withdrawing your existing claims, or waiting for the IRS to process your claims.

The IRS has significantly slowed down its ERC processing since the Sept. 14 moratorium, which is currently scheduled to last until the end of 2023. This slowdown allows business owners extra time to closely inspect their eligibility status and feel confident they’re making the best decision for their company’s financial future.

If you have already received your refunds for the ERC you claimed, but are now nervous about having to pay back the money, OAS can also review your original claim, and if it is problematic, we can help you pay back the IRS as part of their new settlement program, which is designed to help taxpayers who were duped by unscrupulous ERC promoters pay back their claims with little or no penalties and minimal interest.

Finally, if the IRS has already contacted you and notified you that it is commencing an audit of your ERC claims, the Tax Controversy Group at Omega is able to represent you before the IRS during your audit and any appeals process that might occur.  The head of our Tax Controversy Group, Tracy Martinez, is an attorney with over thirty years of experience with the U.S. Department of Justice, Tax Division, and the IRS Office of Chief Counsel. Ms. Martinez and her team are experts in the ERC rules and guidance, and we are ready to help you resolve your IRS issues.