IRS Releases Employee Retention Credit (ERC) Claim Withdrawal Process

On October 19, 2023, the IRS released IR 2023-193 detailing a special ERC claim withdrawal process aimed at helping employers who may have been misled by ERC promoters. The withdrawal option is designed to help organizations that have, in good faith, already filed an ERC claim that may be ineligible.

The new process would allow filers to avoid receiving a refund on their claim and having to pay penalties and interest fees. Notably, according to the IRS, those who willfully file fraudulent claims could still face potential criminal investigation and prosecutions even if a claim is withdrawn.

What Are the ERC Claim Withdrawal Process Requirements?

The ERC claim withdrawal process requirements are narrow in scope. The withdrawal request option is available only to organizations that meet all four of the following:

1. The ERC was claimed on an adjusted employment return (Forms 941-X, 943-X, 944-X, or CT-1X).
2. The amended return was filed only to claim the ERC and not for any other adjustments.
3. The taxpayer wants to withdraw the ERC claim in its entirety.
4. The IRS has not paid the claim — or if paid, the employer has not cashed or deposited the refund check.

According to the IRS, accepted withdrawal requests will be treated as if they were never filed.

Taxpayers wishing to not completely withdraw their claim, but instead adjust its amount, are instructed to file a new adjusted return with the corrected amount. The IRS is expecting to provide guidance later this fall for employers who filed and already cashed or deposited their refund.

What is the ERC Claim Withdrawal Request Process?

The IRS also provided detailed instructions for employers who wish to formally request an ERC claim withdrawal. These steps must be completed separately for each tax period where a withdrawal is requested.

Taxpayers that used a professional payroll company will need to consult with the company as to the procedure to file the withdrawal.

Taxpayers that filed their own ERC claim can fax in their withdrawal claim. The first page of Form 941x should have the word “Withdrawn” inserted on the left margin. On the right margin, the authorized person should sign, date, and list their name and title. If needed, withdrawal requests can be mailed, but will take longer to process.

For ERC claims already under an audit, withdrawal requests can be completed and sent to the assigned examiner. If an examiner has not yet been assigned, requests should be provided with the written response to the audit notice. In both cases, a copy of the adjusted return — signed on its first page and completed — must be included.

For employers who have received a refund check but have yet to cash or deposit it, the taxpayer will need to mail in their withdrawal request and include the voided refund check.

Additional specifications and instructions can be found on the IRS website.

Will My ERC Claim Withdrawal Request Be Accepted?

Formally requesting the ERC withdrawal will not grant automatic acceptance by the IRS. Requestors must wait for written notice of the IRS’s formal determination on the withdrawal request. Approval is not effective until the taxpayer has received the IRS acceptance letter.

Questions About the ERC Claim Withdrawal Process?

The Employee Retention Credit is complex, and organizations are facing aggressive marketing from “ERC mills” promoting high-dollar ERC claims. This is why the IRS recently put a temporary hold on new ERC claims. Our qualified and experienced tax professional can help employers navigate the nuanced complexities of the ERC.