Jennifer Gatherwright: Payouts for Employee Retention Credit long overdue from IRS; what to do?

In 2020 Congress created the Employee Retention Credit (ERC) to give tax credits to businesses that kept employees on payroll instead of laying them off during the COVID-19 pandemic. In reliance on those tax credits many business owners secured loans against their homes and businesses to pay their employees, planning to use the promised ERC refunds to repay these loans.

Years later many of these refunds have not materialized. According to recent IRS data (October 26, 2024), over 1.2 million claims remain unprocessed nationwide.

Our local business owners have not been spared. My colleagues in the accounting industry report hundreds of affected clients.

One of my law firm’s clients is turning 80 years old this year and cannot retire until he receives his million-dollar ERC refund to pay off his COVID-era bank loan. Another client in the bourbon industry is now affected by tariffs that he may be able to weather if the IRS would simply process the ERC refund that he is rightfully owed. Instead, he faces mounting pressure from both international trade disputes and government inaction.

Making matters worse, DOGE’s cuts to the IRS will further extend the processing time for these claims. It is unclear what effect President Trump’s nominee for IRS Commissioner, former Congressman Billy Long – who previously worked as an ERC refund salesperson – may have on the ERC refund process. Without proper agency funding, probably little.

WHY TRADITIONAL RESOLUTION METHODS NO LONGER WORK

When ERC processing delays first appeared, I contacted the Taxpayer Advocate Service and Congressional representatives for assistance – channels that have historically resolved tax issues effectively. This approach initially worked to expedite claims.

Today, these options are ineffective. Contacts at the Taxpayer Advocate offices in Northern Kentucky and Cincinnati candidly admit they can now only monitor – not expedite – the thousands of ERC applications in their queue.

They lack both resources and authority to advance these cases meaningfully. Congressional offices similarly report an inability to intervene.

LEGAL ACTION HAS BECOME THE FASTEST PATH TO RESOLUTION

The IRS is actively settling lawsuits for ERC claims. The government is forced to prioritize taxpayers who file lawsuits for their ERC refunds because while a basic refund claim can remain unaddressed for years, by law the IRS has only 60 days to file an answer to a lawsuit and begin to engage in the legal process. Taxpayers qualify to sue when:

• Six months have passed since filing without substantive IRS response; or

• The IRS has formally denied the ERC claim (taxpayers have 30 days to dispute a denial to protect the two-year timeline to request an appeal or file a suit).

While I typically advise patience with IRS refund claims – IRS staff need time to scrutinize claims for legitimacy – the ERC situation has become extraordinary in both scope and impact.

Many taxpayers simply cannot afford indefinite delays. Those who do not pursue legal action will remain at the back of an extremely long line for years to come.

Jennifer Gatherwright is an attorney with Gatherwright Freeman & Associates who has twenty years of experience with small and middle-market companies to help clients achieve their business goals. Through her tax practice, she has represented clients in all 50 states and has achieved national recognition for her experience in the field of tax controversy. She is a graduate of Chase College of Law and of the University of Cincinnati with a masters in tax accounting. She and her family live in Northern Kentucky.