After issuing a moratorium on new Employee Retention Credit (ERC) claims last month (see related post), the IRS announced on October 19, 2023, that they are developing additional initiatives to help businesses that were victims of aggressive promoters misrepresenting who can qualify for the credits. While the credit is real, in many instances, the IRS is seeing businesses and organizations being misled by promoters into thinking they are eligible when they are not. As a reminder, anyone who improperly claims the ERC must pay it back, possibly with penalties and interest. To help taxpayers avoid this issue, the IRS created an Employee Retention Credit Eligibility Checklist to help taxpayers understand if they qualify for the credit. Taxpayers and their tax advisors can also use an interactive version of the checklist on the IRS website to check potential ERC eligibility.
Withdraw or Amend an ERC Claim
A new option is available for taxpayers who have already filed a claim, but may not have qualified for the credit. Taxpayers that improperly claimed the Employee Retention Credit, will be able to withdraw their amended returns that included the ERC claim as long as the claim has NOT been processed and paid. Certain employers that filed an ERC claim but have not yet received a refund can request to withdraw their submission and avoid future repayment, interest and penalties. Claims that are withdrawn will be treated as if they were never filed, and the IRS will not impose penalties or interest. Please note that if you willfully filed a fraudulent ERC claim, or if you assisted or conspired in such conduct, withdrawing a fraudulent claim will not exempt you from potential criminal investigation and prosecution.
Taxpayers can use the ERC claim withdrawal process if all of the following apply:
- Claim made on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X)
- Adjusted return filed only to claim the ERC, with no other adjustments made
- Request is to withdraw the entire amount of the ERC claim
- The IRS has not paid the claim, or the IRS has paid the claim, but the refund check has not been cashed or deposited
Requesting a withdrawal means you would be asking the IRS not to process your entire amended return that included your entire adjusted employment tax return for the tax period that included your ERC claim. Extensive instructions for completing the withdrawal process are included on a new IRS webpage and specific issues are addressed in the Correcting an ERC Claim – Withdrawing a Claim section of the ERC FAQs.
Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return. If you made any other changes on the adjusted employment tax return or you only need to reduce your ERC claim (not withdraw it entirely), you cannot use the withdrawal process. For more information on how to amend your return in these situations, see the Correcting an ERC Claim – Amending a Return section of the ERC FAQs.
In addition, the IRS is working on a settlement initiative for taxpayers who believe they should not have claimed the ERC and want to repay it.We will keep you updated on this program as more details are announced.
Beware of Continued Scams
The IRS continues to warn against aggressive marketing efforts of scammers. Some of the resources available to help taxpayers stay alert include:
- Warning Signs of Aggressive ERC Marketing
- Red Flags for ERC Claims
- News Release IR-2023-105 – Steps to Avoid Improperly Filing Claims
- ERC Scam Warning – YouTube video
- FAQs – ERC Scams
To report ERC abuse, taxpayers should mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting materials to the IRS (details on form).
Enlist the Assistance of a Trusted Tax Professional
All of the IRS communications encourage businesses to work with a reputable tax professional to ensure they properly qualify for the ERC credit and are meeting other tax compliance rules. If you need assistance or advice about claiming the credit, correcting your return or withdrawing your ERC claim, please reach out to your GYF Tax Executive at 412-338-9300.
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