The employee retention credit (ERC) has been fraught with challenges since its enactment during a rapid series of COVID-19 relief legislative packages in early 2020. Legislative changes to the ERC in 2020 and 2021, along with varying opinions regarding ERC qualifications, have created confusion for both taxpayers and the IRS. Since the mechanism for requesting an ERC refund is on the Form 941 Payroll Tax Return, taxpayers were able to submit a claim for refund until the statute of limitation for amending Form 941 elapsed. The One, Big, Beautiful Bill (OBBB), enacted on July 4, 2025, retroactively restricts refunds to taxpayers who filed their amended returns before Jan. 31, 2024.
Throughout 2023 and 2024, the IRS issued several warnings regarding a very high volume of fraudulent and improper ERC claims. During this time, taxpayers were given an opportunity to withdraw pending claims or return invalid ERC refunds through the voluntary disclosure and settlement program.
The IRS continues to expand the number of IRS examinations for taxpayers awaiting ERC refunds. The OBBB extends the statute of limitations for the IRS to examine Q3 and Q4 2021 ERC to six years from when the amended return was filed. Our tax credit and tax controversy specialists can assist if you’ve already filed an ERC claim and need to verify your ERC credit calculation, need to check your ERC exposure during M&A planning, need to consider amending income tax returns, or need support in an IRS exam. All taxpayers who claimed ERC should consider an assessment from a trusted tax professional who has experience evaluating ERC eligibility, calculating the credit, and defending IRS audits.
