If you have any questions about this article, please send us a message.
- The IRS has announced a special withdrawal process for small businesses that wrongly claimed a pandemic-era tax break.
- If you’ve neither received an employee retention credit refund nor cashed your ERC refund check, there’s still time to withdraw your filing, according to the agency.
- Here’s what small businesses need to know about the withdrawal option.
The agency paused processing new claims for the employee retention credit, or ERC, in September following a surge of questionable filings. Worth thousands per eligible employee, the ERC attracted a cottage industry of companies pressuring small businesses to amend payroll tax returns and wrongly claim the credit.
The IRS on Thursday unveiled a withdrawal option for small businesses with pending ERC claims before facing repayment, interest and penalties.
“This is a game-changer,” said Eric Hylton, national director of compliance for alliantgroup, a firm that has been reviewing ERC claims for other tax professionals.
“I’m actually shocked at some of the horror stories we’ve been seeing,” said Hylton, who is a former IRS commissioner for the agency’s small business and self-employed division.
It’s a ‘mulligan moment’
If you’ve neither received an ERC refund nor cashed your ERC refund check, there’s still time to withdraw your filing, according to the agency. You may qualify if you meet three conditions: you made the claim on an adjusted employment tax return, only changed your filing for the ERC and want to withdraw the entire claim.
You can find the complete details on eligibility and how to withdraw your claim at IRS.gov/withdrawmyERC.
“It’s a mulligan moment,” said Dean Zerbe, national managing director at alliantgroup. He said the withdrawal option is an opportunity to fix mistakes before the IRS catches them.
Currently, there’s an IRS backlog of unprocessed ERC filings. As of Oct. 11, the agency estimated a backlog of 849,000 Forms 941-X, which includes ERC claims.
Small businesses should take the opportunity to “sharpen their pencil” and review their pending ERC filings with a tax professional, Zerbe said, pointing to the strict eligibility requirements. “Business owners can’t just whistle by the graveyard.”
“Think long and hard about what you’re doing here because the IRS is going to be all over this,” he added.
How to handle processed ERC claims
If the IRS already processed your ERC claim and you cashed the refund check, Hylton still recommends reviewing the filing with a tax professional to see if an amendment is necessary.
For example, it’s possible you only qualified to receive the ERC for two quarters but claimed the credit for four or six quarters, he said. Whether you need to make a minor change or major correction, it’s critical to “address the issue as soon as possible,” Hylton said. “You want to be ahead of them.“
We have been working with scores of businesses and nonprofits that have taken ERC with “pop up” shop providers and now are waking up recognizing that all this may be too good to be true.
Dean Zerbe is alliantgroup’s National Managing Director based in the firm’s Washington D.C. office. Prior to joining alliantgroup, Mr. Zerbe was Senior Counsel and Tax Counsel to the U.S. Senate Committee on Finance. He worked closely with then-Chairman and current Ranking Member of the Finance Committee, Senator Charles Grassley (R-IA), on tax legislation. During his tenure on the Finance Committee, Mr. Zerbe was intimately involved with nearly every major piece of tax legislation that was signed into law – including the 2001 and 2003 tax reconciliation bills, the JOBS bill in 2004 (corporate tax reform), and the Pension Protection Act. Mr. Zerbe is a frequent speaker and author on the outlook for short-term and long-term changes in tax policy, as well as ways accounting firms can help their clients lower their tax bill.
Eric Hylton held several prominent positions at the IRS, including serving as Deputy of the Criminal Investigation Division and as CI’s head of International Operations. As National Director of Compliance, Eric employs his years of experience at the IRS to assist alliantgroup’s clients as an ambassador for U.S. small and medium sized businesses (SMBs) and in helping others become tax compliant.