A Pandemic Lifeline That Ended Up Being a Long Wait
The Employee Retention Credit (ERC) was supposed to be a lifeline for companies in the wake of the COVID-19 pandemic. Congress created it so employers could keep employees on the payroll when times were not so good. The premise was straightforward: give employers some financial help so they could survive, and employees could hold on to their jobs.
But reality has been a great deal more complicated. While the programme provided billions of dollars in relief, it was also very complex. Many business owners had difficulty interpreting the rules, and a few shady promoters coaxed companies to apply even when they didn’t qualify. This left the IRS with a monumental problem—reviewing half a million claims, distinguishing genuine businesses from scammers.
IRS Hits Pause on Claims
As a way of dealing with the deluge of claims, the IRS placed a moratorium on processing new ERC requests on September 14, 2023. At first, this stop seemed like a reasonable move to catch up. But years later, honest taxpayers were left hanging in the air.
During that period, businesses that had filed in good faith waited—sometimes with short notice. To countless small businesses and nonprofits, the ERC wasn’t extra money; it was what kept them from shutting down.
Today, as of April 15, 2025, the ERC program is no longer accepting new applications. But the backlog still looms over taxpayers who filed ahead of the deadline.
Where Things Stand Today
The IRS has finally started processing claims. Some are accepted, some rejected, and some are pending for examination. Despite this, however, progress is slow.
As of early April 2025, more than 597,000 ERC claims remain outstanding. They include nearly 11,000 cases that were filed through the Taxpayer Advocate Service (TAS) and that are still open.
The IRS has been able to make some progress—processing some 64% of TAS-submitted claims—but that leaves thousands of small businesses and nonprofits waiting. Many of these taxpayers are in financial distress and need a resolution right away.
Realistically, experts warn that it may be the end of 2025 before the IRS is able to work through the whole backlog. For companies barely hanging in there, that’s an eternity to wait.
The Rise of Disallowed Claims
Even when the IRS does act on a claim, there is no solution to the problems. To date, approximately 84,000 claims have been denied, either in part or in full.
The biggest gripe? An enormous number of taxpayers complain that they are not provided with a valid reason for denial. Unexplained, business owners have no clue what has occurred and how to fix it.
If the taxpayer sues for denial, the wait is months—or even years. There is no way to track the status after a protest has been filed. And if more than two years have passed since the denial date, the IRS is legally barred from issuing a refund—even if the taxpayer is later found to have been correct.
This is not just red tape. It does intrude on basic rights of taxpayers, including the right to be notified, to be able to appeal the IRS position, and to have access to a reasonable system.
IRS Offers Some Guidance
In response to criticism, the IRS has started releasing new guidance. As an example, it now releases more definite instruction on responding to disallowance letters like Letter 105-C and Letter 106-C. Taxpayers are also being taught how to correct returns after an ERC determination.
But for many, this guidance came too late. Seeds of misinformation have already been planted, and thousands of taxpayers are stuck in limbo without an answer.
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What Needs to Change
Going forward, the IRS must restore the public’s trust in the system. Taxpayers who had performed all the right moves are owed clear and prompt resolution. Experts recommend the following action:
- Complete the job expeditiously: Commit to completing the backlog by the end of 2025.
- Prioritize hardship cases: Help those companies in financial distress first.
- Be transparent: Offer clear, explicit explanations for rejected claims.
- Shield taxpayer rights: Alert companies when the two-year mark is near, so they don’t forfeit refunds by default.
- Provide quicker resolutions: Admit more cases to Fast Track Appeals so they don’t languish.
