IRS Announces Withdrawal Process for Employee Retention Credit Claims

The IRS has repeatedly warned taxpayers of aggressive marketing and scams regarding the Employee Retention Credit.  On October 19, 2023, the IRS announced a withdrawal process for Employee Retention claims, which is a special initiative aimed at helping businesses concerned about an ineligible claim.

According to the IRS:  

"This new withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that's still being processed can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible."

Who Can Withdraw Their ERC Claims?

All of the following must apply before an employer can use the ERC withdraw process:

• The employer made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
• The employer filed the adjusted return only to claim the ERC, and they made no other adjustments.
• The employer wants to withdraw the entire amount of their ERC claim.
• The IRS has not paid their claim, or the IRS has paid the claim, but they haven't cashed or deposited the refund check.

As it relates to withdrawing the entire amount of the ERC, this should be analyzed on a quarter-by-quarter basis. For example, a business may have legitimately qualified for the ERC for Q1 2021, but did not qualify for the ERC in Q2 and Q3 2021 even though they claimed it for all of these quarters. The employer is only required to withdraw the entirety of Q2 and Q3 2021. The withdrawal procedure does not require the employers to withdraw all quarters of the ERC claimed. Therefore, employers must first determine what quarters it did not qualify before it withdraws its ERC claim.

How to Withdraw Your ERC Claim(s)?

The IRS has provided specific instruction to withdraw ERC claims.  The process differs depending on the status of the ERC claim:

Scenario 1: You Haven’t Received a Refund and Haven’t Been Notified You Claim is Under Audit.

• Step 1: Make a copy of the adjusted return (e.g., 941-X) with the claim you wish to withdraw.
• Step 2: In the left margin of the first page, write “Withdrawn.”
• Step 3: In the right margin of the first page:
  • Have an authorized person sign and date it.
  • Write their name and title next to their signature.
• Step 4:  Fax the signed copy of your return to the IRS’s ERC claim withdrawal fax line at 855-738-7609. If you cannot fax the withdrawal form, you can mail it, but it will take longer for the IRS to receive your request.

Scenario 2: You Haven’t Received a Refund and You’ve Been Notified Your Claim is Under Audit.

The steps are the same as described in Scenario 1, but you are required to fax/mail the request to a different location. Specifically:

• If you’ve been assigned an examiner, communicate with your examiner about how to fax or mail your withdrawal request directly to them.
• If you haven’t been assigned an examiner, respond to your audit notice with your withdrawal request, using the instructions in the notice for responding.

Scenario 3: You Received a Refund Check but Haven’t Cashed or Deposited it.

• Prepare the claim withdrawal request using the steps in Scenario 1, but don’t fax the request.
• Write "Void" in the endorsement section on the back of the refund check.
• Include a note that says, "ERC Withdrawal" and briefly explain the reason for returning the refund check.
• Make copies for your tax records of the front and back of the voided check, the explanation notes and the signed and dated withdrawal request page.
• Don't staple, bend or paper clip the voided check; include it with your claim withdrawal request and mail it to the IRS at:

Cincinnati Refund Inquiry Unit
PO Box 145500
Mail Stop 536G
Cincinnati, OH 45250

• Track your package to confirm delivery.

Upon reviewing the request, the IRS will send you a letter telling you whether your withdraw request was accepted or rejected.  Your approval request is not effective until you have been notified by the IRS.

Scenario 4: You Received a Refund Check and Have Cashed or Deposited it.

Unfortunately, the withdraw process does not allow for a withdrawal of refunds received that have been cashed or deposited. However, the IRS has indicated there may be a program for this scenario forthcoming. 

If you have concerns regarding the validity of your ERC claim or questions about the withdraw process please contact Cody J. Edwards or Charles L. Telk, III.