The IRS’s Solution for ERC Missteps
In recent news, the IRS has introduced a “special withdrawal process” to assist small businesses that might have mistakenly applied for the employee retention tax credit (ERC).
Originally established to aid small businesses during the challenging times of the Covid-19 pandemic, the ERC, which offers substantial benefits for each qualifying employee, unfortunately, became a target for dubious or potentially fraudulent claims. This scenario was further exacerbated as many small businesses were misled by entities advocating for the ERC, leading the IRS to pause accepting new claims as of last September.
New Withdrawal Process
The IRS’s fresh approach grants select small businesses the opportunity to retract an ERC claim, particularly if they still need to acquire a refund. This measure protects them from impending repayments, accumulating interest, and potential penalties.
Commenting on the situation, IRS Commissioner Danny Werfel remarked, “Numerous businesses and entities, with the best intentions, have been adversely affected due to the aggressive promotions of these schemes. Recognizing their concerns, our goal is to offer an alternative.”
Advice for Small Businesses
Werfel further stressed the importance of seeking counsel from a reputable tax professional rather than relying on promotional companies, given the intricate nature of this tax credit.
For those considering this route, the eligibility criteria to utilize the ERC claim withdrawal include:
- Applying for the ERC through an adjusted employment return, which includes forms such as 941-X, 943-X, 944-X, and CT-1X.
- Using the adjusted return specifically for the ERC claim without additional modifications.
- Aiming to retract the entire ERC claim.
- Not having received any payment related to their claim or, if a payment was received, not having cashed or deposited the refund check.
Small businesses can refer to the official IRS website at IRS.gov/withdrawmyERC for a more in-depth understanding and further details about the process.
Conclusion and Recommendations
In these trying times, it’s crucial for small businesses to be equipped with accurate information and to approach tax credits with caution. If you or your company are navigating such complexities, consider contacting a professional to guide you through the process and ensure you make informed decisions.
Contact Todd S. Unger, Esq. today for insights and assistance on your tax-related concerns.