IRS Provides Procedures for ERC Claim Withdrawal: Should Employers Use Them?

By Jeffrey M. Glassman on October 20, 2023

We have written numerous times about the employee retention credit (ERC): sometimes about the IRS’ focus on unscrupulous refund claims (LINK), more recently about how the IRS has stopped processing new ERC claims (LINK), and steps employers may want to consider taking (LINK). Now the IRS has yet another update regarding ERC issues, most likely motivated by an IRS desire to clear its massive backlog of ERC claims waiting to be administratively processed.

The most recent IRS update includes guidance for employers to help them determine whether they are eligible to withdraw an ERC claim, and if so, how to withdraw the claim (LINK). This procedure could prove beneficial to some employers who wish they had not submitted an ERC claim—potentially helping to avoid staggering civil penalties. There are, however, some very real risks in withdrawing an ERC claim—namely the implications of an admission that the earlier ERC claim was improper. Employers should absolutely consult with a reputable tax advisor before taking advantage of the ERC withdrawal procedures.

Should employers wish to proceed with an ERC withdrawal, the IRS describes who is eligible:

The ERC claim withdrawal process is available if all of the following apply:

You made the claim on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X).
You filed your adjusted return only to claim the ERC, and you made no other adjustments.
You want to withdraw the entire amount of your ERC claim.The IRS has not paid your claim, or the IRS has paid your claim, but you haven’t cashed or deposited the refund check.

There are different procedures depending on where the employer is in the ERC process. Different procedures, which are viewable through this (LINK), apply for each of the following situations:

You haven’t received a refund and haven’t been notified your claim is under audit.
You haven’t received a refund and you’ve been notified your claim is under audit.
You received a refund check but haven’t cashed or deposited it.

Ultimately the decision to withdraw an ERC claim will depend on specific circumstances and may not be an easy decision. There will likely be some significant benefits to withdrawing an improper claim, but the potential drawbacks could be insurmountable.

If you have any questions about this article or any other federal tax matter, please contact me at 214-749-2417 or jglassman@meadowscollier.com.