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Should Your Business Withdraw Its Employee Retention Credit (ERC) Claim (and What If It’s Already Too Late)?

Hot Topics, News, Offshore Account Update

Posted in on October 31, 2023

The Internal Revenue Service (IRS) is giving business owners the opportunity to withdraw invalid Employee Retention Credit (ERC) claims before they trigger audits and investigations. If you have concerns about your business’s ERC claim and think it might be best to withdraw, you should consult with a Maryland tax lawyer promptly. While withdrawing your business’s claim might be the best option, there are other options as well—and the IRS has made clear that withdrawing ERC claims will not insulate business owners from prosecution for attempted tax fraud.

What Maryland Business Owners Need to Know About Withdrawing ERC Claims

For Maryland business owners who are thinking about withdrawing their ERC claims following the IRS’ announcement of the withdrawal process, there are several important factors to consider. For example:

Withdrawing an Invalid ERC Claim Does Not Provide Protection from IRS Scrutiny

While withdrawing an invalid ERC claim can help business owners avoid IRS scrutiny, it can also enhance business owners’ risk in some cases. For example, if a business files for withdrawal when it is ineligible to do so, this could raise red flags at the agency. Businesses that are ineligible to file for withdrawal must address their invalid ERC claims through other means; and, in any case, the IRS has made clear that “withdrawing a fraudulent claim will not exempt [businesses or their owners] from potential criminal investigation and prosecution.”

Not All Businesses Are Eligible to Withdraw Their ERC Claims

To be eligible for withdrawal, businesses that claimed the ERC must satisfy four criteria: They must (i) have claimed the ERC on IRS Form 941-X, 943-X, 944-X or CT-1X; (ii) have filed this form only for purposes of claiming the ERC; (iii) be seeking to withdraw their entire ER claim; and, (iv) have not yet received (or cashed or deposited) a refund check from the IRS.

If a business is not eligible for withdrawal, then not only will filing a withdrawal request be ineffective, but it may also trigger scrutiny from the IRS. As a result, business owners should not file ERC claim withdrawal requests unless they are certain that this is their best option.

If a Business Can’t File for Withdrawal, It May Have Other Options Available

Business owners who are ineligible to file for withdrawal should not simply ignore any concerns related to their ERC claims. Improperly claiming the ERC can lead to allegations of tax fraud—and these allegations can lead to criminal prosecution in some cases.

If it is too late to file for withdrawal (i.e., if your business has already deposited its ERC refund check), or if your business is otherwise ineligible, you should discuss your options with a Maryland tax lawyer as soon as possible. Depending on the circumstances, filing an amended return may be appropriate, or it may be necessary to consider another alternative, such as voluntary disclosure. In any case, you will need to take appropriate action before the IRS initiates an audit or investigation in order to mitigate your risk effectively.

Request a Confidential Consultation with Maryland Tax Lawyer Kevin E. Thorn

We represent Maryland businesses and business owners in all federal tax matters. If you have questions regarding your business’s ERC claim, call 240-235-5096 or contact us online to request a confidential consultation with Maryland tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group.

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