October 30, 2023
The IRS has announced relief for employers who submitted erroneous claims for the Employee Retention Credit (ERC). According to the IRS, many of the 3.6 million ERC claims filed are unacceptable, due in part to distorted claims about the ERC program. Through these new withdrawal procedures, the IRS is encouraging businesses to reconsider ERC claims that may be incorrect by offering relief from potential penalties that may be imposed for inaccurate refund claims.
For some time, the IRS has issued warnings about the ERC claims, placing certain ERC schemes first on its 2023 “Dirty Dozen” list of abusive transactions. On September 14, 2023, the IRS issued a moratorium on processing IRS claims, while it reviewed its ERC procedures.
Employers have the right to defend any ERC claim filed and may pursue an administrative appeal. If these efforts are unsuccessful, the IRS can proceed directly to collections. On July 24, 2023, in an effort to expedite the recovery of erroneous refunds for ERC, the IRS issued final regulations (T.D. 9978) whereby the erroneous refunds of pandemic-related employment credits will be treated as underpayments of the taxes resulting in excess refunds being subject to assessment, penalties, and administrative collection procedures.
To be eligible for the withdrawal option, an employer must meet the following criteria:
- The ERC claim must have been filed on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1x).
- The adjusted return(s) must contain no adjustments other than the ERC claim.
- The entire ERC claim must be withdrawn.
- The IRS must not have paid the ERC claim or, if it has paid the claim, the employer must not have deposited the refund check.
The IRS emphasized that the withdrawal of a fraudulent ERC claim will not immunize employers or their advisors from potential criminal investigations and prosecutions for willfully filing, or willfully assisting or conspiring to file, a fraudulent ERC claim. The IRS continues to aggressively investigate fraudulent ERC claims and suspected ERC promotion schemes.