IRS Announces Withdrawal Process for Eligible Businesses as It Continues to Target ERC Fraud

Businesses that improperly claimed the Employee Retention Credit (ERC) are facing scrutiny from the Internal Revenue Service (IRS). To help businesses that unknowingly worked with fraudulent promoters and scam artists to submit improper ERC claims, the IRS has announced a process for withdrawing invalid claims before they trigger an audit or investigation. If you think your business may need to file for withdrawal, you should consult with a New Jersey tax lawyer promptly.

This is because not all businesses qualify. The IRS has established four eligibility criteria for seeking withdrawal, and ineligible businesses must consider other options for resolving their invalid ERC claims. To be eligible for ERC claim withdrawal, a business must:

• Have used an adjusted employment return (Form 941-X, 943-X, 944-X or CT-1X) to claim the ERC;
• Have used their adjusted return only to claim the ERC;
• Have not yet received a refund from the IRS (or not yet cashed or deposited its ERC check); and,
• Be seeking to withdraw the entire amount of its ERC claim.

What Are the Consequences of Filing for Withdrawal?

Filing for withdrawal of an invalid ERC claim can help businesses and their owners avoid prosecution for tax fraud. However, immunity from prosecution is not guaranteed. As the IRS explained when announcing the ERC claim withdrawal process on October 19, 2023, if a business owner is suspected of willfully filing a fraudulent ERC claim, “withdrawing [the] claim will not exempt them from potential criminal investigation and prosecution.” As a result, while filing for withdrawal will be the best option for many businesses, business owners who are considering withdrawal should consult with a tax lawyer prior to filing.

What Are the Consequences of Not Withdrawing an Invalid ERC Claim?

Businesses that do not withdraw their invalid ERC claims are at risk of facing IRS audits and criminal tax fraud investigations. The IRS is heavily targeting ERC fraud, and it plans to do so for the foreseeable future. While business owners who relied on fraudulent promoters and scam artists may not have criminal culpability, they can still face civil liability for back taxes, interest, penalties and ERC refund reimbursement.

What if Your Business is Ineligible for ERC Claim Withdrawal?

If your business is ineligible for ERC claim withdrawal, you still have options available—and you may need to take action in order to avoid IRS scrutiny. As the IRS explains in its announcement, one option in this scenario is to file an amended return (and pay all amounts due). However, filing an amended return can raise red flags in some cases, and for business owners who are at risk of facing allegations of willfully filing an invalid ERC claim, voluntary disclosure may be a better option.

Request a Consultation About Your Business’ ERC Claim with New Jersey Tax Lawyer Kevin E. Thorn

If you need to know more about your options for resolving an invalid ERC claim, we encourage you to contact us promptly for a confidential consultation. To request an appointment with New Jersey tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, call 201-842-7696 or tell us how we can reach you online now.