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In September, the IRS announced a processing moratorium on new Employee Retention Tax Credit (ERTC) claims. The agency was forced to take this step because of the high number of improper claims received. Scheduled to run through the end of the year, it allows the extra time needed to implement additional review procedures. Unfortunately, bad actors have encouraged unsuspecting business owners to claim the federal tax credit by providing incomplete or inaccurate information about the program. To make matters worse, if payment is received from an improper claim, the business will be required to repay the credit along with penalties and interest. An important detail bad actors intentionally omit in the sales process.
At the same time, the IRS announced plans to create additional taxpayer safeguards. This included a program that permits taxpayers to voluntarily withdraw suspected improper claims. Designed to help those concerned about the validity of a claim, it makes it easy for eligible businesses to remove a previously submitted claim. The good news is the ERTC Withdraw Program details were recently announced, providing important guidance to taxpayers. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.
Unfortunately, not all companies are eligible to participate in the program. A company may participate in the program if all the following conditions are met, including:
- The initial claim was made on an adjusted employment tax return, including IRS forms 941-X, 943-X, 944-X, or CT-1X.
- The adjusted return was filed only for the purpose of claiming the ERTC, and no other adjustments or changes were included.
- The taxpayer wishes to withdraw the entire amount of the ERTC claim.
- The IRS has not paid the claim, or the claim has been paid but has not been cashed or deposited.
This means those trying to withdraw a portion of the credit need to make other return corrections and receive a notice disallowing the entire ERTC amount are not eligible to participate.
Withdrawing an ERTC Claim
The steps in withdrawing a claim vary depending on the company’s situation. Those who have not received a refund or been notified the claim is under audit, have not received a refund but the claim is under audit, or have received a refund check but have not cashed it, will follow different directions. In certain circumstances, those who used a payroll company to make the claim may need to have them submit the withdrawal request.
The steps which must be followed are outlined below, including:
- Circumstance 1 – Claim Filed Not Currently Under Examination. These companies need to follow a simple process to request a withdrawal. The first step is to make a copy of the adjusted return with the claim that is to be withdrawn. In the left margin of the first page, write Withdrawn, and on the other side, write the name, title, signature, and date of the request. Fax a signed copy of the return to the special IRS tax line.
- Circumstance 2 – Claim Filed Currently Under Examination. These companies need to follow the same steps outlined above but should not submit the request to the IRS directly. Rather, communicate with the assigned examiner about how to submit the request. In the event an examiner has not been assigned, respond to the audit notice with the request using the included instructions.
- Circumstance 3 – Refund Received but Check Not Cashed. These companies should follow the same steps outlined above. On the check, the word void should be written in the endorsement section. Then, a brief note explaining the reason for the check’s return. All documents, including the check, should be mailed to the Cincinnati Refund Inquiry Unit.
Withdrawal requests must be signed by an authorized individual, which is different depending on the entity. For sole proprietors, only the individual who owns the business may sign the request. Corporations can have the president, vice president, or other principal sign. Partnerships can have an authorized partner or officer sign. In the case of a trust or estate, the fiduciary must sign.
The new program makes it easy for eligible businesses to remove an ERTC claim from consideration. However, before requesting a withdrawal, it is important to consult with a qualified tax advisor to determine if it is necessary to do so. If you have questions about the information outlined above or need assistance with an ERTC claim review, JLK Rosenberger can help. For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.