Withdrawal Process Offered to Small Business Owners Who Claimed Pandemic-Era Tax Credit

Nov 18, 2023 | Blog

Last week, the Internal Revenue Service announced a “special withdrawal process” for filers who knowingly or unknowingly claimed the pandemic-era “Employee Retention Tax” credit when they were, in fact, not entitled to the benefit. Tax lawyers in San Jose have learned that businesses that wrongly claimed this credit, typically referred to as the ERC, may have done so because of promoters who aggressively marketed the tax credit to rustle up business. In September, the IRS temporarily refrained from processing new ERC claims in order to give taxpayers a chance to withdraw upon discovering they were ultimately ineligible for the credit.

Offering Taxpayers an Escape Hatch

IRS Commissioner Danny Werfel stated that the agency wanted to offer filers a way out if they submitted a return claiming a credit to which they were not truly entitled. Certain small businesses can now opt to withdraw their ERC claim if they have not yet received a refund, and, in this way, avoid the need to contact tax audit attorneys to get them out of hot water.

Well-Meaning Organizations and Businesses Harmed by Aggressive Marketing Schemes

According to the IRS, the ERC, which totals thousands per eligible employee, became a magnet for out-and-out fraudulent or questionable claims. Although some small businesses may have purposefully applied for the credit with full knowledge that they did not qualify, Werfel stated that many well-meaning organizations and businesses fell prey to unscrupulous ERC promoters. Those who inadvertently took inappropriate advice now have a way out if they are having second thoughts about the credits they claimed on their returns.

According to a tax attorney for ERC claims, small businesses can avail themselves of the claim withdrawal process if they meet certain criteria. This includes having claimed the ERC on Forms 941-X, 943-X, 944-X, or CT-1X.

If an adjusted employment return was used to claim the ERC with no other changes, or if their intention is to withdraw the ERC claim entirely, they can use the withdrawal process. All the criteria, however, is contingent on the filer not having deposited or cashed the refund check. If they haven’t received the refund check yet, or have the check but have not deposited it, the ERC claim can be withdrawn as long as the refund check is voided and returned with the request.

Specified Process for Claim Withdrawal

Taxpayers who want to take advantage of this option must follow the specific instructions listed on the IRS website. Some business owners will likely seek the assistance of IRS tax lawyers if the process appears confusing or they have concerns they may not complete it properly. However, the IRS has created a fax line dedicated to withdrawal requests for filers who wish to handle this process on their own.

If an employer is under audit, the company must still respond to the tax audit and send the withdrawal request to the assigned examiner, with the voided check, if applicable.

IRS Commissioner Urges Taxpayers to Seek Professional Advice

Commissioner Werfel urges taxpayers to seek the advice of tax professionals when claiming any complicated tax credit, such as the ERC, as this is the best way to avoid inadvertently claiming something to which one is not entitled. Marketing companies often use tax credits to attract business, but it is ultimately the taxpayer who is responsible for any errors. TaxHelpers in San Jose should be contacted by anyone who is confused about this credit or is seeking to withdraw an ERC claim.