The Employee Retention Credit (ERC) was created as a pandemic-era lifeline for eligible employers, but the program has also been heavily targeted by aggressive promoters and “too good to be true” marketing. As a result, the IRS has significantly increased scrutiny, slowed processing, and issued disallowance notices and audits sometimes sweeping legitimate claims into the same enforcement dragnet as questionable filings. The National Taxpayer Advocate has noted that the ERC filing window has closed, yet hundreds of thousands of claims remain unresolved, making this an ongoing issue for businesses still waiting for answers.

At the same time, the legal landscape for challenging agency interpretations has shifted since the U.S. Supreme Court’s June 28, 2024 decision overruling Chevron deference meaning courts should apply independent judgment when interpreting ambiguous statutes rather than automatically deferring to an agency’s “reasonable” reading. While this does not guarantee better outcomes in ERC disputes, it can matter in cases where eligibility turns on how complex rules are interpreted.

The ERC Landscape in 2026: What Businesses Need to Know

Even though ERC relates to 2020–2021 qualified wages, the ERC “afterlife” is very real. As of 2026, the IRS is still processing older claims, issuing disallowances, and expanding audits and promoter enforcement. The Taxpayer Advocate Service reported that as of May 2025, more than 597,000 ERC claims were still unprocessed, with thousands of disallowance notices already issued.

There have also been important developments affecting timeliness and processing. In addition, IRS guidance tied to later compliance legislation clarifies that new ERC claims for Q3/Q4 2021 filed after January 31, 2024 may be disallowed, with specific rules and appeals pathways described by the IRS.

Common ERC Problems and What to Do Next

1) Pending ERC Claims: Still Waiting for Your Refund

Many employers are still waiting on ERC refunds due to the IRS backlog and the agency’s intensified fraud screening. Even when a claim is legitimate, the IRS may route it for additional review, increasing processing time. The IRS has stated that standard processing targets have lengthened and may be significantly longer for claims requiring further scrutiny.

How Moskowitz LLP can help:

We start by assessing whether the underlying claim is well-supported and whether your documentation is strong enough to withstand review. If the claim is valid, we answer follow-up questions, organize substantiation, and pursue the most appropriate procedural path to move the matter forward without making risky assumptions or triggering avoidable issues.

2) ERC Disallowances: Letter 105-C, the 30-Day “Response Window,” and the Two-Year Trap

If the IRS disallows your ERC claim, you may receive Letter 105-C. The IRS explains that if you disagree, you should respond with documentation supporting eligibility and the claim amount, and it generally asks taxpayers to dispute the disallowance within 30 days to help protect their timeline.

Crucially, the IRS also states that you generally have two years from the date of Letter 105-C to file suit, and requesting an appeal does not extend that two-year period so timing and strategy matter. You may request review by the IRS Independent Office of Appeals, but you must do so in a way that preserves your rights and keeps the case moving.

How Moskowitz LLP can help:

We review the original filing, the IRS’s stated basis for disallowance, and your substantiation. If a claim is defensible, we prepare a targeted response, request Appeals where appropriate, and map out a litigation-preservation strategy so you don’t lose leverage or your refund due to a missed deadline.

3) ERC Audits: Defending Legitimate Claims in a High-Scrutiny Environment

ERC audits can be document-heavy and adversarial, especially where the IRS suspects promoter involvement or weak eligibility. The IRS has publicly warned that improperly claimed ERC can result in repayment obligations, penalties, and depending on facts potential criminal exposure. Even legitimate employers may face intense scrutiny because the IRS is attempting to separate valid claims from widespread abuse.

How Moskowitz LLP can help:

We manage communications with the IRS examiner, coordinate document production, develop the legal narrative, and defend eligibility using a disciplined record-building approach. We also advise clients on risk, exposure, and options if the audit reveals weaknesses that need to be addressed proactively.

4) If You Regret Filing: Withdrawal and Correction Options

If you believe your ERC claim may be incorrect or you filed through an aggressive promoter the IRS has provided a withdrawal process in certain situations (for example, where the ERC hasn’t been paid yet, or a check was issued but not cashed). The IRS explains that withdrawn claims are treated as if never filed and that it will not impose penalties or interest for the withdrawal itself though withdrawal does not shield willful fraud from investigation.

How Moskowitz LLP can help:

We evaluate whether you qualify for withdrawal, whether an amendment is required instead, and the best way to reduce exposure while protecting your business.

Contact our Tax Resolution and ERC Services Tax Attorneys

ERC issues sit at the intersection of payroll tax procedure, documentation standards, audit defense, Appeals strategy, and refund litigation timing. Moskowitz LLP’s team of experienced tax attorneys, CPAs, and enrolled agents helps businesses navigate pending claims, disallowances, and audits with a strategy designed to be both defensible and deadline-safe especially when the IRS is applying heightened scrutiny across the board.

Call Moskowitz LLP at 888-TAX-DEAL or use our confidential online contact form to schedule a consultation.