The IRS recently announced a new withdrawal option for small businesses that may have mistakenly claimed a pandemic-era tax benefit known as the Employee Retention Credit (ERC). This decision comes after the halt of new claims processing in September due to a rise in dubious filings. The ERC, offering significant financial incentives per qualified employee, inadvertently fostered a wave of aggressive solicitations towards small businesses to file amended payroll tax returns to claim the credit erroneously.

IRS Introduces ERC Withdrawal Option

On Thursday, the IRS revealed a pathway for small businesses to retract pending ERC claims to avoid potential repayment, interest, and penalties. This move offers a lifeline to those who might have been misled into filing for the credit without fully meeting the eligibility criteria.

Advice for Businesses with ERC Claims

Experts stress the importance of reevaluating ERC claims, especially for businesses with filings still under IRS review. With an estimated backlog of 849,000 Forms 941-X, which includes ERC filings, businesses are advised to consult with a tax professional to ensure their claim aligns with the stringent eligibility requirements. “It’s a mulligan moment,” one expert described, emphasizing the rare opportunity for businesses to correct their filings before attracting IRS scrutiny.

Guidance for Processed ERC Claims

For businesses whose ERC claims have already been processed and who have received and cashed refund checks, there is still an imperative to review these claims with a tax expert. Adjustments may be necessary if discrepancies in the eligibility or claim period are discovered. Proactively addressing potential errors is crucial to stay ahead of any IRS actions.