If you own a business, we are sure you have also gotten emails, phone calls, and even texts from companies promising to help you to apply for – and receive – employee retention credits. While there are legitimate reasons for some businesses to apply, many companies fell for “too good to be true” offers of free money and may have inadvertently committed fraud. Last month, we shared that the IRS had quit processing ERC claims because fraud was so rampant. Now, the IRS recently unveiled a new procedure allowing businesses to voluntarily withdraw their ERC claims, a development that’s especially relevant in light of the agency pausing the processing of new ERC claims until early 2024.
The Reason Behind the New Withdrawal Process
This move follows the discovery of a substantial number of potentially fraudulent claims, prompting the IRS to enhance its scrutiny of such claims. The withdrawal process is designed to offer businesses a chance to re-evaluate their claims. If a business determines its claim to be invalid, it can now proactively withdraw the claim to avoid the processing and potential auditing stages.
Insights from the IRS
Linda Azmon of the IRS provided insights during the American Bar Association’s Virtual 2023 Fall Tax Meeting. The procedure is intended for businesses that have not yet received a refund or whose claims have not been processed. She clarified that a withdrawal would mean that the IRS will not process the amended return at all. This option is critical for businesses that have received a refund check but haven’t cashed it yet or those awaiting processing.
Misconceptions Corrected
Azmon addressed misconceptions, particularly around the IRS’s ability to reclaim funds from erroneous refunds. She clarified that new regulations allow the IRS to treat such refunds as underpayments, thus simplifying the recovery process without resorting to litigation.
What This Means for Businesses
This update from the IRS offers a preemptive solution for businesses to reassess their ERC claims. It’s a chance to avoid the complexities and uncertainties of audits and potential legal challenges. Businesses are encouraged to conduct thorough reviews of their ERC claims and consider the withdrawal option if discrepancies are found.
Have Questions or Need Help?
Understanding these developments is crucial, and as your accounting ally, we’re here to help navigate these changes. For businesses needing assistance with reviewing their ERC claims or considering the withdrawal option, please reach out for our guidance to ensure compliance and peace of mind during this transition period.