As we discussed in our September 25 publishing, Everybody’s Got Something to Hide Except Me and My Monkey: IRS Issues Moratorium on Processing New Employee Retention Credit Claims, the IRS previously stated that it was finalizing details for a special withdrawal option for taxpayers who have claimed an ERC, but where such claim has not been processed. On October 19, 2023, the IRS provided details of such withdrawal procedures.

The Internal Revenue Service (IRS) has now provided the procedures for a taxpayer to file a request to withdraw its employee retention credit (ERC) claim. ERC claims that are withdrawn will be treated as if they were never filed and no interest or penalties will be imposed on the taxpayer.

Who Can File a Withdrawal Request?

A taxpayer may withdraw its ERC claim only if all of the following requirements are met:

1. The taxpayer made the ERC claim on an adjusted employment tax return (Forms 941-X, 943-X, 944-X, CT-1X).
2. The taxpayer filed an adjusted employment tax return only to claim the ERC and made no other adjustments.
3. The taxpayer wants to withdraw the entire amount of its ERC claim.
4. The IRS has not paid the taxpayer’s ERC claim or the IRS has paid the taxpayer’s ERC claim, but the taxpayer has not cashed or deposited the refund check.

How Do I File a Withdrawal Request?

The IRS has provided different procedures depending on whether the taxpayer is under audit and whether the taxpayer has received a refund check (which has not been cashed or deposited).

All taxpayers withdrawing an ERC claim must prepare an ERC claim withdrawal request in accordance with the following instructions:

1. Make a copy of the adjusted employment tax return(s) with the ERC claim the taxpayer wishes to withdraw.
2. In the left margin of the first page of the adjusted employment tax return, write “Withdrawn.”
3. In the right margin of the first page of the adjusted employment tax return have an authorized person (e.g., the president, vice president, or other principal officer of a corporation and a responsible and duly authorized member, partner, or officer of a partnership) print and sign their name, print their title, and date it.

If the taxpayer has not received an ERC refund check and has not been notified that it is under audit, the withdrawal request should be faxed to the IRS’s ERC claim withdrawal fax line at 855-738-7609.

If the taxpayer has not received an ERC refund check but has been notified that it is under audit, the taxpayer should communicate with its examiner about how to submit its withdrawal request directly to them. If the taxpayer has not been assigned an examiner, the taxpayer should respond to its audit notice with its withdrawal request (using the instructions in the notice for responding).

If the taxpayer has received an ERC refund check but has not cashed or deposited it yet, the taxpayer should prepare a withdrawal request in accordance with the above instructions. The taxpayer should also do the following (a) write “VOID” in the endorsement section on the back of the refund check, (b) include a note that says, “ERC Withdrawal” and briefly explain the reason for returning the refund check, and (c) mail the voided check and withdrawal request to a dedicated IRS address.

What Happens After I File a Withdrawal Request?

The IRS will send letters notifying taxpayers whether their withdrawal request was accepted or rejected. A withdrawal request is not approved until an acceptance letter is received from the IRS.

As cautioned in our prior client alert, Everybody’s Got Something to Hide Except Me and My Monkey: IRS Issues Moratorium on Processing New Employee Retention Credit Claims, the IRS Criminal Investigation Division is actively working to identify fraud and promoters of fraudulent claims for potential referral for prosecution to the US Justice Department, so taxpayers should proceed with caution and seek advice of a trusted tax advisor. Taxpayers who may have claimed an ERC improperly should consult a trusted tax advisor to determine whether their claim is valid, whether to withdraw such claim, or what other actions should be considered. Failure to act could result in substantial penalties if a claim is ultimately disallowed.

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