The Internal Revenue Service has given small business owners and others who may have unintentionally filed inaccurate claims for the Employee Retention Credit (ERC) a way to escape a portion of the monetary consequences for filing a bogus tax claim.
The IRS has now established a process allowing certain ERC filers to withdraw their credit claim before it’s processed, thereby avoiding interest and penalties.
The withdrawal option treats the claims as if they were never filed, and, because the withdrawal request is filed before the bogus claim is paid, the would-be recipient doesn’t have to pay their refund amount back to the IRS.
Filers who are worried about the accuracy of their ERC claim have legitimate reason for concern, particularly if their claim was submitted with premeditation. The IRS has made it clear that filers who knowingly submitted a fraudulent claim for credit won’t be able to escape criminal investigation or prosecution even if their bogus claim is withdrawn.
Scammers Behind the Push to File Inaccurate or Outright Bogus Claims.
The Employee Retention Credit was created as a refundable tax credit for businesses that paid their employees through the Covid-19 pandemic while the business was partially or completely shut down due to a government order or had a major drop in gross receipts during the eligibility periods.
It should be noted that the ERC is not available to individuals.
Scammers and unscrupulous promoters took the appeal of a big refund to business owners and other taxpayers who may not have qualified for the tax credit in the first place or gave in to pressure from the schemers to inflate various numbers to get a larger refund.
Promoters of these scams took to the airwaves, claiming the ERC application process was simple and fast, when, in reality, the credit is a complex piece of tax code, requiring exacting application requirements.
Under pressure from relentless marketing of these scams, the IRS was flooded with claims for the ERC, totaling some 3.6 million claims over the course of the program. We wrote about how the agency responded with a moratorium on processing new ERC claims in September. Instead, the IRS said it was doing more to screen incoming claims for compliance, to stem the flood of ineligible filings.
Some of those taxpayers, suspecting their claims for the credit may not have been strictly legitimate, are having second thoughts and may be looking for a way out.
That’s where the IRS withdrawal offer comes in. Employers seeking to withdraw their filed claims for the Employee Retention Credit may do so, but only if all the following conditions are met:
- The claim was made on an adjusted employment return, such as Forms 941-X, 943-X, 944-X or CT-1X;
- The adjusted return was filed only to claim the ERC and no other adjustments were made;
- The taxpayer seeks to withdraw the entire amount of the ERC claim; and
- The IRS has not paid the claim, or the IRS has paid the claim, but the taxpayer hasn’t cashed or deposited the refund check.
Those not eligible to use the withdrawal option still have a way back by filing an amended return that reduces or eliminates their ERC claim. Details on all the options for ERC filers are available in a Nov. 2 IRS webinar as well as a new question-and-answer checklist.