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IRS Announces Withdrawal Process for Employee Retention Credit (ERC) Claims

Articles/News, Hot Topics, Offshore Account Update

Posted on October 31, 2023 |

The Internal Revenue Service (IRS) has announced a withdrawal process for businesses that have concerns about the validity of their Employee Retention Credit (ERC) claims. As the IRS explains, it will treat withdrawn ERC claims “as if they were never filed,” and it will not impose penalties or interest.

However, withdrawing an invalid ERC claim does not provide complete protection from the risk of prosecution for attempted tax fraud. The IRS makes this clear, stating that “Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.” The IRS’ withdrawal process is intended as a sort of amnesty program for businesses that fell victim to ERC scams and for business owners who were unaware that their ERC claims were invalid. Boston tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, explains:

Determining Eligibility for ERC Claim Withdrawal

The IRS has established four criteria for determining a business’s eligibility to withdraw its ERC claim. Currently, a business may withdraw its ERC claim if:

  • The business claimed the ERC on an adjusted employment return (Form 941-X, 943-X, 944-X or CT-1X);
  • The business filed the adjusted employment return only to claim the ERC;
  • The business wishes to withdraw the entire amount of its ERC claim and,
  • The IRS has not paid the business’s ERC claim (or if the business received a refund check, it has not cashed or deposited the check).

Businesses that are ineligible to withdraw their ERC claims under these criteria have options as well. As the IRS notes, one option is to file an amended return to reduce or eliminate their ERC claims. However, while filing an amended return will be a safe option for some businesses, it also has the potential to tip off the IRS to potential tax fraud. As a result, for business owners who have concerns about facing allegations that they intentionally filed invalid ERC claims, submitting a voluntary disclosure may be a better option.

When Should a Business Withdraw Its ERC Claim?

All of this raises an important question: Should your business withdraw its ERC claim?

The IRS is actively targeting businesses, business owners and scam artists for ERC fraud. Noting a wave of fraudulent claims, the IRS recently placed a moratorium on new filings as it devotes its resources to scrutinizing previously filed claims. While the IRS has stated that it is primarily focused on prosecuting scam artists (and protecting taxpayers), it is also targeting businesses and business owners in both civil audits and criminal tax fraud investigations. As a result, any business owners who have concerns should consult with a tax lawyer promptly.

Discuss Your Business’ ERC Claim with Boston Tax Lawyer Kevin E. Thorn in Confidence

If you need to know more about the IRS’ withdrawal process for ERC claims or the other options you may have available, we encourage you to contact us promptly. To discuss your business’s ERC claim with Boston tax lawyer Kevin E. Thorn in confidence, please call 617-692-2989 or request a consultation online today.

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