IRS: Qualifying Businesses Can Withdraw Their ERC Claims to Avoid Interest and Penalties
On October 19, 2023, the Internal Revenue Service (IRS) announced a process for businesses to withdraw their Employee Retention Credit (ERC) claims. The announcement comes just over a month after the IRS placed a moratorium on new filings due to concerns about widespread ERC fraud. Washington D.C. tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains what business owners need to know:
Why Should Business Owners Consider Withdrawing Their ERC Claims?
The IRS has announced its ERC claim withdrawal process in an effort to help businesses and business owners that fell victim to ERC filing scams. These scams proliferated during the COVID-19 pandemic, and as businesses can file for the ERC retroactively (or they could until the IRS imposed its moratorium), they remain a concern today.
The withdrawal process provides an opportunity for innocent business owners to avoid interest, penalties and repayment liability due to improperly receiving the ERC. Crucially, however, withdrawing a claim does not guarantee protection from prosecution for ERC fraud. As the IRS makes clear, business owners “who willfully filed a fraudulent claim . . . should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.”
What Businesses Are Eligible to File for Withdrawal?
In its News Release, the IRS lists four criteria that businesses must meet in order to be eligible to file for withdrawal. Currently, a business may withdraw its ERC claim if:
- It claimed the ERC on an adjusted employment return (Form 941-X, 943-X, 944-X or CT-1X);
- It filed the adjusted employment return solely for the purpose of claiming the ERC;
- It wishes to withdraw the entire amount of its ERC claim; and,
- Either (i) the IRS has not paid its ERC claim, or (ii) it has not cashed or deposited its refund check from the IRS.
If a business does not meet all four of these criteria, then it is not eligible to file for ERC claim withdrawal. However, it may have other options available—and pursuing one of these other options may be critical for avoiding scrutiny from the IRS.
What if Your Business Isn’t Eligible to Withdraw Its ERC Claim?
As the IRS explains, one option for businesses that aren’t eligible for withdrawal is to file an amended return (and repay their refund, with applicable penalties and interest, if necessary). However, just like filing for withdrawal, filing an amended return has the potential to lead to IRS scrutiny. As a result, rather than filing an amended return, it will be in some business owners’ interests to consider alternatives such as making a voluntary disclosure.
Request a Confidential Consultation with Washington D.C. Tax Lawyer Kevin E. Thorn
If you need to know more about your options for resolving an invalid ERC claim, we encourage you to contact us promptly. To request a confidential consultation with Washington D.C. tax lawyer Kevin E. Thorn, please call 202-349-4033 or contact us confidentially online today.