IRS Releases Fact Sheet Discussing New OBBB Limitation on the Employee Retention Credit (ERC)

While the One Big, Beautiful Bill (OBBB) made national headlines this summer, one little-known provision in the OBBB addresses businesses’ ability to retroactively claim the pandemic-era Employee Retention Credit (ERC). This provision will have significant financial implications for many businesses, and in a recent Fact Sheet, the Internal Revenue Service (IRS) made clear that enforcing ERC compliance remains among its top priorities. Learn more from New Jersey tax defense lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group:

OBBB Retroactively Limits ERC Eligibility for Q3 and Q4 of 2021

After multiple extensions, the deadline to file an ERC finally came and went on April 15, 2025. However, when the OBBB became law on July 4, 2025, it retroactively revised the ERC filing deadline to January 31, 2024. As the IRS’ Fact Sheet explains:

“[S]ection 70605(d) of the OBBB[] prevents the IRS from allowing or refunding ERCs after July 4, 2025, for the third and fourth quarters of 2021 if those claims were filed after January 31, 2024 . . . .”

Although ERC claims covered under Section 70605(d) of the OBBB are no longer eligible for credits or refunds, the IRS’ Fact Sheet also states that, “[i]f [a] claim was filed after January 31, 2024, but was refunded or credited before July 4, 2025, section 70605(d) does not apply.” Thus, while the IRS is no longer issuing credits or refunds for ERC claims covered under Section 70605(d), it currently is not intending to pursue recovery of credits or refunds already approved.

Businesses That Improperly Claimed the ERC Can Still Face IRS Scrutiny

Regardless of whether a business’s ERC claim has resulted in a credit or refund, noncompliance with the terms of the ERC program can expose a business (and its owners and executives) to IRS scrutiny. As noted above, the IRS is continuing to prioritize ERC fraud enforcement; and, in doing so, it is targeting both successful and unsuccessful ERC claimants.

Examples of issues that can lead to ERC fraud allegations include:

• Submitting ERC claims for ineligible (or non-existent) businesses
• Submitting ERC claims for calendar quarters in which a business was ineligible
• Submitting identical ERC claims for calendar quarters when the eligibility terms varied
• Inflating payroll or “qualified wage” figures
• Falsifying payroll records to substantiate fraudulent ERC claims

Depending on the specific allegations at issue, ERC fraud enforcement actions can either be civil or criminal in nature. For businesses (and business owners and executives) that are at risk of facing ERC-related scrutiny, coming into compliance proactively can mitigate the consequences of past mistakes. While some businesses may be able to submit amended returns or withdraw their ERC claims, others may need to consider alternatives such as submitting a voluntary disclosure.

Schedule a Confidential Consultation with New Jersey IRS Tax Lawyer Kevin E. Thorn

If you need to know more about the options that are available for mitigating ERC-related risk, we encourage you to contact us promptly. To schedule a confidential consultation with New Jersey IRS tax lawyer Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 201-842-7696 or tell us how we can reach you online today.