The Internal Revenue Service (IRS) has provided details about its program allowing employers to voluntarily withdraw their refund claims for the Employee Retention Tax Credit (ERC). This provision applies to those who have not yet received the refund or, if received, have not cashed the check.[1]

The news release delineates the reasons the IRS introduced this program for employers:

This new withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that’s still being processed can withdraw their claim and avoid the possibility of getting a refund for which they’re ineligible.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.[2]

Taxpayers Eligible for the Program

Simultaneously with the news release, the IRS published Fact Sheet 2023-24[3], offering further details about the program. The release specifies which parties can request the withdrawal of an ERC claim.

Employers can use the ERC claim withdrawal process if of all the following apply:

• They made the claim on an adjusted employment tax 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.

Businesses that have willfully filed fraudulent claims, assisted in such conduct or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.[4]

The Fact Sheet indicates that certain employers, even if ineligible for this process, might pursue an alternative approach:

Employers that can’t use this process may still be able to file another adjusted return if they need to:

• Reduce the amount of their ERC claim

• Make other changes to their adjusted return

The frequently asked questions[5] about the ERC have more details for these employers.[6]

Question 1 in the “Amending a Return” section of the Frequently Asked Questions page provides guidance for employers looking to reduce their claimed credit:

Prepare a new adjusted return (Form 941-X, Form 943-X, Form 944-X, Form CT-1X) with the correct amount of ERC and any other corrections for that tax period. Mail the new adjusted return to the IRS using the address in the instructions for the form that applies to your business or organization. Do not send the new adjusted return to the dedicated ERC claim withdrawal fax line. IRS will not process new adjusted returns sent to this fax line.[7]

Question 2 addresses situations where a taxpayer intends to withdraw the ERC claim but also requires additional, non-ERC related amendments to their payroll tax return.

Prepare a new adjusted return (Form 941-X, Form 943-X, Form 944-X, Form CT-1X) with the correct amount of ERC and any other corrections for that tax period. Mail the new adjusted return to the IRS using the address in the instructions for the form that applies to your business or organization. Do not send the new adjusted return to the dedicated ERC claim withdraw fax line. IRS will not process new adjusted returns sent to this fax line.[8]

How to Handle a Withdrawal Request – Those Who Used a Payroll Company

The Fact Sheet initiates its section on requesting the withdrawal of an ERC claim by addressing the unique scenario in which an employer has submitted the initial ERC claim via a professional payroll service.

Employers that filed their ERC claim through a professional payroll company and want to request a claim withdrawal will need to contact the entity that filed the claim on their behalf. These companies may include a certified professional organization (CPEO), professional employer organization (PEO) or other Section 3504 agents.[9]

The Fact Sheet subsequently addresses different scenarios pertaining to taxpayers who did not utilize a professional payroll service.

How to Handle a Withdraw Request - Employers Who Haven’t Received a Refund and Haven’t Been Notified Their Claim is Under Audit

For employers who have not received a refund and have not been informed by the IRS that their examination is under audit, the Fact Sheet offers the subsequent guidelines.

If the employer filed an adjusted return (Form 941-X, 943-X, 944-X, CT-1X) to claim the ERC and would like to withdraw the entire claim, they can use the process below. If they filed adjusted returns for more than one tax period, they must follow the steps below for each tax period for which they are requesting a withdrawal.

To request a withdrawal, follow these steps:

• Make a copy of the adjusted return with the claim they wish to withdraw.

• In the left margin of the first page, write “Withdrawn.”

• In the right margin of the first page:

  • Have an authorized person sign and date it.

  • Write their name and title next to their signature.

• Fax the signed copy of the return to the IRS’s ERC claim withdrawal fax line at 855-738-7609. This is the withdrawal request. Keep the copy with tax records.

If a taxpayer can’t fax their request, they can mail the signed copy to the address in the instructions for the adjusted return that applies to their business or organization. Before doing so they should make a copy of the signed and dated first page to keep with their tax records. It will take longer for the IRS to receive a mailed request. Track the package to confirm delivery.

How to Handle a Withdraw Request - Employers That Haven’t Received a Refund and Have Been Notified Their Claim is Under Audit

For taxpayers who are under examination but have not yet received their refund check, the Fact Sheet prescribes the subsequent procedures to be taken if they wish to withdraw their claim:

Employers facing an IRS audit, also referred to as an exam, can still withdraw their ERC claim. If a taxpayer has been notified that the IRS is auditing the adjusted return that includes their ERC claim, they should prepare their withdrawal request using the steps in Section A, above, but they should not fax it to the withdrawal fax line or mail it using the address below. Instead:

• If they’ve been assigned an examiner, they should communicate with the examiner about how to fax or mail the withdrawal request directly to them.

• If they haven’t been assigned an examiner, they should respond to the audit notice with the withdrawal request, using the instructions in the notice for responding.[10]

How to Handle a Withdraw Request - Employers Who Received a Refund Check but Haven’t Cashed or Deposited It

When a taxpayer has received a refund check for their claim, has not cashed or deposited it, and now desires to withdraw their claim, the IRS provides the following guidance for the employer:

Employers that have received a refund check but still haven’t cashed or deposited it, can still withdraw their claim. They need to mail the voided check with their withdrawal request using these steps:

• Prepare the claim withdrawal request using the steps in Section A,[11] above, but don’t fax the request.

• Write “Void” in the endorsement section on the back of the refund check.

• Include a note that says, “ERC Withdrawal” and briefly explain the reason for returning the refund check.

• Make copies for tax records of the front and back of the voided check, the explanation notes and the signed and dated withdrawal request page.

• Don’t staple, bend or paper clip the voided check; include it with your claim withdrawal request and mail it to the IRS at:
  Cincinnati Refund Inquiry Unit
  PO Box 145500
  Mail Stop 536G
  Cincinnati, OH 45250

• Track your package to confirm delivery.

What Happens Next?

The employer is not yet assured the withdrawal of their claim will be accepted merely because they followed these steps.  Rather the taxpayer must await confirmation from the IRS of the acceptance of the withdrawal as noted in the Fact Sheet.

Taxpayers will get a letter from the IRS about whether their withdrawal request was accepted or rejected. The approved request is not effective until the taxpayer has the acceptance letter from the IRS.

If the IRS accepts the withdrawal, the taxpayer may need to amend their income tax return. See Claiming the ERC for explanation of how ERC affects your income tax return. If a taxpayer needs help, they should consult a trusted tax professional.[12]

If the withdrawal is not accepted, the employer will need to evaluate why the withdrawal was not accepted. If it was merely because the employer had already cashed the refund check, then the employer needs to wait for the IRS guidance to come for those taxpayers.  If the taxpayer simply didn’t follow the correct procedure (they were under exam but attempted to file the form as if they weren’t), then the employer needs to follow the correct procedure.

But if the employer appears to otherwise qualify, that could indicate that the IRS believes the taxpayer had filed a fraudulent claim and the employer may wish to consult with legal counsel if that has not already taken place.

What About Employers Who Received an ERC Refund?

The IRS has not yet issued guidance for the steps an employer should take if they received the refund based on their claim and have already cashed or deposited the check.  Rather the Fact Sheet notes:

The IRS is also working on guidance to help employers that were misled into claiming the ERC and have already received the payment. More details will be available this fall.[13]

[1] “IRS announces withdrawal process for Employee Retention Credit claims; special initiative aimed at helping businesses concerned about an ineligible claim amid aggressive marketing, scams,” IR-2023-193, October 19, 2023, https://www.irs.gov/newsroom/irs-announces-withdrawal-process-for-employee-retention-credit-claims-special-initiative-aimed-at-helping-businesses-concerned-about-an-ineligible-claim-amid-aggressive-marketing-scams (retrieved October 19, 2023)

[2] “IRS announces withdrawal process for Employee Retention Credit claims; special initiative aimed at helping businesses concerned about an ineligible claim amid aggressive marketing, scams,” IR-2023-193, October 19, 2023

[3] “Help for businesses: Steps for withdrawing an Employee Retention Credit claim,” Fact Sheet FS-2023-24, October 19, 2023, https://www.irs.gov/newsroom/help-for-businesses-steps-for-withdrawing-an-employee-retention-credit-claim (retrieved October 19, 2023)

[4] “Help for businesses: Steps for withdrawing an Employee Retention Credit claim,” Fact Sheet FS-2023-24, October 19, 2023

[5] “Frequently asked questions about the Employee Retention Credit,” IRS website, October 19, 2023, https://www.irs.gov/coronavirus/frequently-asked-questions-about-the-employee-retention-credit (retrieved October 19, 2023)

[6] “Help for businesses: Steps for withdrawing an Employee Retention Credit claim,” Fact Sheet FS-2023-24, October 19, 2023

[7] “Frequently asked questions about the Employee Retention Credit,” IRS website, October 19, 2023

[8] “Frequently asked questions about the Employee Retention Credit,” IRS website, October 19, 2023

[9] “Help for businesses: Steps for withdrawing an Employee Retention Credit claim,” Fact Sheet FS-2023-24, October 19, 2023

[10] “Help for businesses: Steps for withdrawing an Employee Retention Credit claim,” Fact Sheet FS-2023-24, October 19, 2023

[11] The steps used by an employer who had not received a refund yet and is not under exam.

[12] “Help for businesses: Steps for withdrawing an Employee Retention Credit claim,” Fact Sheet FS-2023-24, October 19, 2023

[13] “Help for businesses: Steps for withdrawing an Employee Retention Credit claim,” Fact Sheet FS-2023-24, October 19, 2023