Inaccurate Employee Retention Credit Claims May Be Withdrawn

CATEGORY: Private Education Matters
CLIENT TYPE: Private Education
DATE: Oct 30, 2023

On October 19, 2023, the Internal Revenue Service (IRS) announced a withdrawal process for employers who have submitted Employee Retention Credit (ERC) claims.  This process is yet another step the IRS has taken to address the significant number of scams associated with aggressive marketing companies misleading employers regarding ERC credits and causing them to file ineligible claims.  Filing ineligible claims can result in employers being required to repay the credit and being assessed penalties and fees.

Employers that are eligible to withdrawal an ERC claim must satisfy all of the following:

  1. They made an ERC claim on an adjusted employment return;
  2. Their only purpose of filing the adjusted return was to claim the ERC (i.e. no other adjustment was requested);
  3. They seek to withdraw the entire amount of the ERC claim; and
  4. They have not yet received payment on their ERC claim or have not yet deposited or cashed the IRS refund check.

If qualified, an employer can submit a withdrawal by following the IRS instructions found here.  Withdrawal procedures vary depending on how the ERC credit was initially submitted, if an employer is currently being audited by the IRS, or if an employer has already received but not cashed a check for the ERC credit.

Employers that are ineligible for a withdrawal, but have identified an error in their ERC claim, may reduce or eliminate their claim by filing an amended return.

The announcement of this withdrawal process follows the IRS’ September 14, 2023, announcement of a moratorium on processing new claims for at least the rest of the year.  The IRS is continuing to process ERC claims received before September 14, 2023, but has slowed processing due to the increase in claims submitted by ineligible employers.

The IRS also warns that even with the current moratorium, marketers and scammers are still targeting employers.  The IRS is now observing scammers offering employers costly up-front loans in anticipation of receiving an ERC credit.

We recommend continuing to remain vigilant in the event you are contacted by a marketer proposing to assist you in submitting an ERC credit, and to seek out the assistance of your trusted tax professional before submitting an ERC claim.  LCW attorneys can assist employers in negotiating agreements with companies seeking to advise on submitting an ERC claim, and can also advise employers who have submitted an ERC credit, but may need to submit a withdrawal.

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