Earlier this month the United States Government Accountability Office (GAO) reported that the IRS had “closed all remaining ERC claims, aside from those under examination or appeal, by December 31, 2025.” According to an IRS comment letter attached to the GAO report, the “IRS closed all the remaining non-examined claims by December 31, 2025. The remaining approximately 41,000 claims are either in Examination or Appeal.”
Many in the tax practitioner community were surprised that the IRS has “closed” all but 41,000 Employee Retention Credit (often called the ERC, or ERTC) refund claims, leaving only those that are either in Examination (i.e., under audit) or Appeal (i.e., where the IRS has already disallowed some or all of an ERC claim, and the taxpayer has protested the disallowance to the IRS Independent Office of Appeals “IRS Appeals”). I am personally aware of many ERC refund claims that the IRS has not taken any action on. The IRS has not audited these claims, disallowed them, issued refunds, or taken any other action at all. Charles “Chuck” Rettig, who was the Commissioner of IRS from 2018 to 2022 and who now represents taxpayers in IRS controversies as a shareholder at the law firm Chamberlain Hrdlicka, was also surprised, telling me: “It’s important that the IRS be transparent here. It’s taken a long time for it to deliver this COVID relief which is still important to many businesses. The IRS should not close those claims simply because they are old.”
It is, therefore, troubling for the IRS to say that it has “closed” those claims. In its report, GAO recommended that the “Commissioner of Internal Revenue should update the public about the current status of ERC claims.” The IRS disagreed with GAO’s recommendation, again succinctly explaining that it “closed all the non-examined claims by December 31, 2025.”
Where does that leave taxpayers whose ERC refund claims are still pending?
If your claim is one of the 41,000 that the IRS is currently auditing or has already disallowed in full or part, I have previously written about the steps you should take here, here and here. To summarize those articles, if the IRS is auditing your refund claim you should use that as an opportunity to show why you are entitled to the refund. Answer the IRS’ questions as best you can. In some cases, you may want to go further – even addressing questions the IRS may not have asked, to ensure that the IRS understands why you qualify.
If the IRS has disallowed some or all of your claim (normally by IRS Letter 105-C) you have the option of protesting the IRS disallowance to IRS Appeals or suing for the refund in court. In most cases, it makes sense to first protest the disallowance to IRS Appeals, if only because you can still go to court later, effectively giving you two chances to show that you are entitled to the refund. Unlike the IRS Exam team auditing claims, IRS Appeals also has authority to settle cases based on the hazards of litigation. That is important because eligibility for the ERC is not always clear, especially in cases where the taxpayer claims it is eligible because its business was partially suspended due to a government order. That is a subjective inquiry where reasonable people can disagree. It’s the job of IRS Appeals to make settlement offers in those types of cases.
Unfortunately, IRS Appeals is overwhelmed with cases and lost a lot of personnel with the change in Administration. The result is that protesting an IRS disallowance of an ERC refund claim to IRS Appeals will likely take well over one year, and perhaps more than two years. That can create a trap for unwary taxpayers because the law requires taxpayers to sue for a refund within two years of the IRS disallowing it. Although the IRS can agree to extend that two-year period, protesting the disallowance to IRS Appeals does not by itself act to extend the time. Once the IRS disallows your claim, you MUST either file suit in court within two years or get the IRS to execute Form 907 to extend the period. If you do not do one of those things the law requires the IRS to deny your claim, regardless of your eligibility for the ERC.
This is likely to be an issue for many taxpayers, because the IRS reported in August of 2024 that it had recently denied 28,000 ERC claims, meaning that we are coming up on the two-year anniversary of those disallowances. The National Taxpayer Advocate also recently reported that the IRS does not have a process in place to deal with all the taxpayers who will need the IRS to execute Form 907 while their protests are still pending with IRS Appeals. The Advocate also reported that the IRS had denied 316 ERC claims simply because the two-year period had run. I fear that may be the tip of the iceberg.
If, on the other hand, you have never heard from the IRS, there are a few things you can do to try to force IRS action. First, as a preliminary matter, you should check your IRS account transcripts to confirm that the IRS received your claims. If not, you might consider resubmitting the claims with proof of the prior mailing. (You want to make clear that you are not now filing the claim for the first time, as the time for doing so has since expired.)
If you have confirmed that the IRS received your claim but you have never heard anything you have some options to try to get IRS action. First, you can ask your congressional representative to find out the claim’s status from the IRS. Second, you can file a Form 911 with the National Taxpayer Advocate (also known as the Taxpayer Advocate Service, or TAS). GAO reported that taxpayers suffering hardships who called on TAS or their congressional representative for assistance were able to obtain refunds even during the a period of time when the IRS had otherwise stopped processing claims (what the IRS called a “moratorium”).
The last option for stuck ERC claims is to sue the IRS. I have told a lot of taxpayers that this truly should be the last option, because litigation adds risk and expense. Moreover, in December of 2024 then IRS Commissioner Danny Werfel reported that the IRS would be paying most ERC claims in 2025, as I previously wrote about here. In most cases, it does not make sense to go to court when there is a high probability that the IRS will issue the refund on its own, along with hefty interest. If you are considering filing suit I wrote about some things you should consider here.
The question is, does the IRS’ reporting that it has “closed all the non-examined ERC claims” change what taxpayers should do? I spoke with two practitioners about their views on what to do with non-examined ERC claims. Mr. Hackney, a shareholder at the Chamberlain Hrdlicka law firm, advised that “taxpayers should contact TAS or their congressional representative if they have not already done so.” If you have already taken those steps, former Commissioner Rettig suggested taxpayers “wait a little longer to see how things play out before deciding whether to sue the IRS. It’s possible that the IRS is signaling that it is about to make a surge of payments. If you don’t get paid in a few months you can reconsider your options then.”
There is an important caveat to that advice. The IRS has historically taken the position that taxpayers retain the right to sue for as long as the refund claim remains pending without IRS action. If that were true for ERC refund claims, taxpayers would theoretically have forever to file suit, provided that the IRS had not denied the claims (which would trigger the two-year statute of limitations discussed earlier).
Unfortunately, a handful of courts have disagreed with that view, holding that a general, non-tax specific statute of limitations requires taxpayers to sue no later than six years after their claim against the IRS accrues. The law allows taxpayers to sue for a refund six months after they file a claim with the IRS, so these courts have held the claim accrues six months after the refund claim is filed. Said another way, these courts have held that there is a 6.5 year outer limit to file suit against the IRS for a tax refund, starting with the day the refund claim is filed. That date is starting to come up for ERC refund claims filed in 2020.
This puts taxpayers between a rock and a hard place. The IRS position is that the six-year general statute of limitations does not apply, so there are no procedures for the IRS to extend it. And this is one of those rare situations where the Department of Justice, which represents the IRS in refund litigation, may not agree with the IRS position. Taxpayers who are approaching the 6.5 year outer limit to file suit will need to choose whether to give the IRS more time to issue a refund at the risk of having no judicial recourse if the IRS does not issue the refund, or give up on the IRS and make sure to file suit before the 6.5 year outer limit runs.