The Employee Retention Credit (ERC) was designed to help employers keep their employees on payroll during the COVID-19 pandemic by offering a refundable tax credit against certain employment taxes. Despite the Internal Revenue Service (IRS) issuing more than $242 billion in ERC as of early 2025, the processing and payment of these claims have faced significant delays and scrutiny.
In a recent Bloomberg Tax article, McDermott’s tax controversy and litigation team shared a broad overview of the stages of ERC claims and potential ways in which taxpayers can resolve them. Key takeaways include:
- ERC claims can be in one of four stages: no IRS action, IRS examination, formal disallowance, or IRS recapture. Understanding the implications of each stage can be crucial for maximizing taxpayers’ chances of receiving and keeping ERC.
- Thousands of ERC claims remain stagnated in the IRS’s administrative review process. Litigation can be a powerful tool to expedite the payment of ERC claims.
- Taxpayers must be highly vigilant about the applicable statutes of limitations concerning ERC refund claims. Not understanding these deadlines can undermine the potential for a successful ERC claim.
- The IRS is capable of recapturing ERC that it believes was erroneously allowed. However, the mechanisms for recapture may be susceptible to legal challenge, and taxpayers should be aware of their litigation options.
