IRS Announces ERC Claim Withdrawal Process

We’ve written about the Employee Retention Credit (ERC) quite a bit over the last two years, trying to coach companies to take a hard look at whether or not they truly qualify for the credit. With the IRS putting a moratorium on processing new ERC claims through at least December 31, it highlighted that potentially fraudulent claims were being made. In most cases, it was never as simple as those who received Paycheck Protection Program funds also qualified for ERC. I think many of us saw or heard those ads.

On top of the moratorium on processing new ERC claims, the IRS has announced taxpayers have the opportunity to withdraw their submitted ERC claim if they are concerned about their qualification or accuracy. If a claim is withdrawn it will be treated like it was never filed and no penalties or interest will apply. It’s not all roses though. The guidance does provide a word of caution that those who filed a fraudulent claim willfully, or those who assisted, are not exempt from criminal investigation and potential prosecution. Four requirements must be met in order to withdraw an ERC claim:

• You want to withdraw the entire amount of the claim
• The claim was made on an amended employment return
• The amended employment return was filed only to claim the ERC and no other adjustments were made
• The ERC claim has not been paid, or the check has not been cashed or deposited

If a taxpayer isn’t eligible to use the withdrawal process a workaround is filing an amended employment return to eliminate the ERC claim.

We found through assisting clients with reviewing their eligibility, many transportation companies did not qualify for ERC based on gross receipts. In fact, many transportation companies had some of their best years during the ERC period. Without meeting the gross receipts test, it becomes harder to support a claim on the other ERC eligibility factors given IRS guidance. If you’ve made an ERC claim and are concerned, consider the withdrawal process and consult your tax advisor.