Published: August 27, 2024 | Last Updated: February 3, 2026

Protect Taxpayer Rights in Employee Retention Credit Claims

Background

The Employee Retention Credit (ERC) is a refundable tax credit designed to provide employment tax relief for businesses that endured certain pandemic-linked difficulties in 2020 and 2021 yet retained employees on payroll. However, the ERC’s complex eligibility framework, often-lucrative value, and an unregulated preparer industry have made it vulnerable to infiltration by unscrupulous actors who aggressively marketed scams and misled business taxpayers under the guise of lawful services, often for large fees. Due to a substantial processing backlog aggravated by fraudulent and erroneous claims, the IRS implemented compliance enforcement initiatives, slowed or halted ERC processing for stricter review, and imposed a moratorium on processing ERC claims filed on or after September 14, 2023. To conserve staffing resources and encourage voluntary compliance for business taxpayers, the IRS deployed an ongoing ERC Withdrawal Program and a temporary Voluntary Disclosure Program (VDP) requiring taxpayers to withdraw unprocessed returns and repay overstated credits.

The ERC’s complexity and the IRS’s focus on identifying incorrect claims means there are undoubtedly eligible business taxpayers with legitimate ERC claims who are experiencing lengthy delays. These taxpayers are waiting for information about their ERC claims because the IRS has not posted processing updates and offers no mechanism for taxpayers to check their claim status online. The IRS must find a balance between fraud prevention and taxpayer service to ensure it preserves the taxpayer rights to finality and to challenge the IRS’s decision and be heard.87 For business taxpayers to get the relief Congress intended, the IRS should improve its process to identify legitimate ERC claims in better, more timely ways; significantly increase the volume of ERC claims it processes (approval of claim, denial of claim, or initiation of an audit of the claim); and be transparent by posting general updates on the ERC claims backlog and estimated processing timelines.

Highlights

Status

Activities

Activity 1: Advocate for the IRS to continue incentivizing taxpayers to voluntarily withdraw ineligible pending ERC claims; return erroneous ERC claim refunds; and for taxpayers who received their ERC payments, file the required amended business returns related to the ERC benefits or offset the ERC pending claims by the benefits on the required amended business returns.

Activity 2: Recommend the IRS post general updates about the volume of the ERC claims backlog and estimated processing times.

Activity 3: Continue to refer ERC cases for the IRS to prioritize when the taxpayer has a significant hardship and qualifies for TAS assistance.

Activity 4: Work with the IRS to ensure it offers clear explanations and transparency when it denies an ERC claim by providing taxpayers with a written explanation consistent with the taxpayer right to be informed and clearly details the basis for denial so taxpayers may properly consider whether to exercise their right to appeal an IRS decision in an independent forum or pursue litigation.

Activity Update:

Activity 1: TAS continued to advocate for taxpayers that do not qualify for ERC to withdraw their claims using the IRS’s ERC withdrawal program. TAS also provided information to taxpayers on the requirements to amend business returns that the IRS added to their FAQs in March of 2025. This activity is being closed as completed.

Activity 2: TAS continued to work with practitioners and TAS Case Advocacy to get taxpayer’s ERC claims processed and to get their 105C disallowance responses reviewed. In 4th quarter, TAS met with several practitioner groups to discuss barriers on ERC claims and elevate issues when appropriate to the IRS.TAS ERC advocacy efforts for 4th quarter included working with IRS to correct accounts incorrectly issued disallowance notices, prematurely closed disallowance document review cases, or incorrectly failing to provide taxpayers an opportunity to appeal their disallowance claim. As of September 30, 2025, the IRS has completed the processing of most pending ERC claims. This activity is being closed as completed.

Activity 3: Currently assigned to Case Advocacy.

Activity 4: Systemic Advocacy discussed numerous times with the IRS the importance of providing a clear explanation to taxpayers of why their ERC claims were being fully or partially disallowed. In the fourth quarter, the IRS started sending taxpayers a Form 5260, Quick Note, on ERC streamlined audits and ERC disallowances notice document review, providing a more substantiative explanation of why the claim was being disallowed. Recommend this activity be closed as completed.

1st Quarter Actions Completed

The Taxpayer Advocate Service (TAS) updated several Employee Retention Credit (ERC) TAS Tax Tips on the TAS website with current information advocating for taxpayers to review their ERC claims to verify they are eligible and explaining available options if they determine they are not eligible for the credit.

Additionally, the 2024 National Taxpayer Advocate Annual Report to Congress includes administrative recommendations for administering claims. One for the IRS to provide regular updates on IRS.gov on the processing of outstanding Employee Retention Credit (ERC) claims and include specific anticipated timeframes; and a second recommendation for the IRS to provide clear Disallowance explanations.

Daily – Case Advocacy reviewed cases to determine if elevation to Taxpayer Services was appropriate.
Weekly – Case Advocacy elevated significant hardship ERC claims to IRS Taxpayer Services for prioritization.

A total of eleven lists, consisting of over 450 ERC claims, were submitted to IRS for prioritization.

2nd Quarter Actions Completed

TAS spoke with the IRS’s Employee Retention Credit (ERC) program team regarding statute issues surrounding amending business returns. IRS finalized and published FAQs regarding the requirement to amend business returns for wages included in the calculation of ERC credits claimed on the business’ payroll return.

TAS held several conversations with the IRS’s ERC program team advocating for the following:

More transparency on the status of processing outstanding ERC claim; and
Clearer explanations and transparency when the IRS denies a claim.

IRS has made several updates to the irs.gov landing page explaining the disallowance process. Based on other TAS inquiries, IRS is in the process of producing a separate landing page with guidance on responding to partial claim disallowance notices.

3rd Quarter Actions Completed

TAS updated the TAS Employee Retention Credit (ERC) Tax Tip with current information on the withdrawal program to encourage businesses to verify they qualify and withdraw their claim if they determine they do not.

The National Taxpayer Advocate released the June Report to Congress requesting that the IRS Complete processing of all Employee Retention Credit claims and ensure taxpayer rights are protected.

The National Taxpayer Advocate released a blog advocating for IRS to prioritize resolution, communication, and taxpayer protections. TAS had several discussions and worked numerous issues surrounding the ERC disallowance notices program, including the document review process and the appeals process; advocating to reduce taxpayer burden and protect taxpayer rights.

4th Quarter Actions Completed

TAS continued to advocate for taxpayers that do not qualify for ERC to withdraw their claims using the IRS’s ERC withdrawal program. TAS also provided information to taxpayers on the requirements to amend business returns that the IRS added to their FAQs in March of 2025.

Systemic Advocacy (SA) continued to work with practitioners and TAS Case Advocacy to get taxpayer’s ERC claims processed and their claim disallowance responses reviewed. In the fourth quarter, SA met with several practitioner groups to discuss barriers on ERC claims and then elevated appropriate issues to the IRS.

Systemic Advocacy discussed numerous times with the IRS the importance of providing a clear explanation to taxpayers of why their ERC claims were being fully or partially disallowed. In the fourth quarter, the IRS started sending taxpayers a Form 5260, Quick Note, on ERC streamlined audits and ERC disallowances notice document review, providing a more substantiative explanation of why the claim was being disallowed.

Return to FY26 Objective Statuses