As indicated in the September 14th IRS announcement of a moratorium on Employee Retention Credit (ERC) processing, the IRS has published instructions for businesses to withdraw their ERC claims. Information about the ERC withdrawal program can be found in this IRS press release, this IRS Fact Sheet, the dedicated IRS webpage http://www.irs.gov/withdrawmyerc, and the updated FAQ here.
Reasons for ERC Withdrawal
The purpose of the withdrawal program is to enable taxpayers who, after filing one or more quarters of ERC, no longer feel that those claims were correct and would like to reverse those claims without any negative consequences. Not all filers will be able to utilize the withdrawal program. IRS explains that in order to use the withdrawal program, the taxpayer must meet the following four conditions:
- 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.
More clarity about these conditions is added in one of the new FAQs on the subject, where the IRS lists six factors that would prevent a taxpayer from using the new simplified withdrawal procedure:
- The credit you are trying to withdraw was filed on an original employment tax return (Form 941, 943, 944, CT-1),
- You are trying to withdraw only a portion of your ERC,
- Your adjusted return (Form 941-X, Form 943-X, Form 944-X, Form CT-1X) reports tax items not on your original return in addition to the ERC claim,
- You need to make other corrections to your return,
- You received your ERC refund and cashed or deposited the refund check, or
- You received a notice or letter from the IRS disallowing the entire amount of your ERC.
Claim withdrawals must be made separately for each quarterly filing the taxpayer wants to withdraw. Instructions vary based on the following three scenarios:
- The taxpayer has not received a refund and has not been notified that their claim is under audit;
- The taxpayer has not received a refund but has been notified that their claim is under audit; or
- The taxpayer received a refund check but has not cashed or deposited it yet.
Not All or Nothing
Taxpayers considering using the withdrawal program should evaluate if all, or just some, of the quarters claimed should be withdrawn. One of the new FAQs points to another important consideration, “What should I do if I’m still entitled to some of the credit but claimed more than I’m entitled to receive?” To which the IRS instructs the taxpayer to file a new adjusted return with any of the necessary changes.
Used a PEO?
Businesses that used a Professional Employer Organization (PEO) to file ERC claims on aggregate amended returns will face particular challenges to make use of the withdrawal program. The new IRS FAQ explains that the PEO, and not the taxpayer, will need to submit the relevant withdrawal request. To complicate matters, since PEOs file a single tax return aggregating the information from all their underlying clients, the IRS explains that PEOs may not withdraw the ERC for some, but not all, of their clients: “Requesting a withdrawal means you [the PEO] are asking the IRS not to process your entire adjusted return for the tax period that included your ERC claim – this would include the ERC claim for all of your CLE clients. As a result, you will need to 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.”