As you have probably heard, the IRS has stopped accepting ERC applications. There was a significant amount of fraud and the claims from those who did not qualify were partially the result of aggressive marketing. Because the IRS understands that some of the aggressive companies have harmed small businesses and taken advantage of some well-meaning organizations, the IRS is offering an opportunity to withdraw your ERC claim.
This special process is only allowed if you meet all four conditions:
- You made the claim on the adjusted employment tax return.
- You filed your adjusted report 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 deposited the refunds check(s)
This process also does not apply if you have already been notified your claim is under audit. There is still an opportunity to withdraw your claim and you will need to send information directly to your assigned examiner.
There are specific instructions on the IRS website Withdraw an Employee Retention Credit (ERC) claim | Internal Revenue Service (irs.gov) and you need to follow them closely. It is also important that you inform your bookkeeper, tax preparer and/or financial statement auditor about this process.
This will allow you to treat the claim as if it were never filed. In effect it is a free pass for anyone who suspects that they didn’t actually qualify or who knows that they did not qualify.
Applications submitted prior to mid-September will still be processed but the IRS has more than 600,000 claims awaiting processing. Just because your claim is not processed does not mean that it was fraudulent or that it won’t be processed.
The IRS is taking this very seriously and of the 252 investigations involving over $2.8 billion of claims, 15 have resulted in federal charges. This is around 5%. Six of those have resulted in convictions (40%) and four are already in sentencing phase with the average sentence being 21 months.
If you have doubts or concerns, we recommend that you review the IRS site, talk to your CPA and take action, as needed.