The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made sweeping changes to the Employee Retention Credit (ERC) program, and some employers may now be at risk of losing claims or facing increased IRS scrutiny. If your business claimed the ERC or promoted the ERC, these updates could directly impact you.
At Holtz, Slavett & Drabkin (HSD Tax Law), our experienced former IRS attorneys have helped employers and advisors navigate these ERC issues. Here’s what you need to know about the latest ERC developments.
- ERC Claims Filed After January 31, 2024, Are Disallowed
The new law retroactively disallows any ERC claims for Q3 and Q4 of 2021 filed after January 31, 2024. Even if your claim would have been valid under prior law, the IRS is now required to deny it.
- IRS Gets Six Years to Audit ERC Claims
The statute of limitations for ERC audits has been extended to six years for ERC claims for Q3 and Q4 of 2021. This means the IRS has more time to:
- Audit your ERC claim
- Demand additional documentation
- Assess penalties or interest
Tip: Employers should preserve payroll records, eligibility documentation, and correspondence with ERC advisors. Our tax attorneys can help you prepare a compliance strategy before the IRS contacts you.
- New Penalties for Promoters and Advisors
The OBBBA introduces a 20% penalty on erroneous refund claims and imposes due diligence requirements on ERC promoters. Failure to comply may result in $1,000 fines per violation.
ERC promoters are service providers (excluding certified professional employer organizations) that provide assistance or advice regarding an ERC that:
- Collected a fee based on the amount of the ERC refund and have gross receipts from ERC assistance or advice in excess of 20% of their gross receipts for a specified year;
- Their gross receipts from ERC assistance or advice exceeds 50% of their gross receipts for a specified year; or
- Their gross receipts from ERC assistance or advice exceeds 20% of their gross receipts for a specified year, and such gross receipts for such assistance or advice exceed $500,000.
If you promoted the ERC and are concerned about the due diligence requirement, contact a qualified former IRS attorney at Holtz, Slavett & Drabkin. Holtz, Slavett & Drabkin provides ERC claim reviews and defense services for promoters concerned about audit risk.
- Extension of the Statute of Limitations to Claim Income Tax Refunds Resulting from ERC Denials
Employee wages that were considered for the ERC claim are generally not deductible as business expenses on the employer’s income tax return. As a result, employers were generally required to reduce their wage expense on their income tax return. However, if the employer’s ERC was denied years after reducing the wage expense on the income tax return, under prior law the statute of limitations (time limit) to claim a refund of the income taxes on account of the now increased amount of deductible wages may have expired. The OBBBA resolved this by extending the statute of limitations on seeking an income tax refund related to this matter.
The former IRS attorneys at Holtz, Slavett & Drabkin analyze the statute of limitations to claim a refund, work with clients to submit refund claims, and pursue refund litigation when appropriate.
Help Protect Your Business from ERC Risks
The IRS is intensifying enforcement of ERC claims, and with extended deadlines, more businesses will face audits and disallowances in the coming years. At Holtz, Slavett, and Drabkin, we specialize in:
- ERC audit defense
- IRS collection defense
- Penalty abatement strategies
- Protecting employers from aggressive IRS enforcement
Don’t wait until the IRS contacts your business. Contact the former IRS attorneys at Holtz, Slavett & Drabkin regarding your ERC issues.
The former IRS attorneys at Holtz, Slavett & Drabkin are your trusted allies in navigating the intricate landscape of the ERC. Former IRS Attorneys of Holtz, Slavett & Drabkin, APLC, assist clients in all types of disputes with the Internal Revenue Service and state tax authorities.
If you have been contacted by the IRS regarding your ERC, are concerned about a submitted claim, promoted the ERC, or have questions about eligibility for the ERC, you can schedule a consultation with Richard Gano. He can be reached at (310) 550-6200 or rgano@hsdtaxlaw.com. His profile can be accessed here.