An ERC audit attorney is a tax lawyer who defends businesses against IRS examinations of Employee Retention Credit claims. The IRS has established a dedicated ERC examination unit and is actively disallowing billions of dollars in credits that were claimed between 2020 and 2021. If your business received the ERC and is now facing an audit, disallowance notice, or repayment demand, you need legal representation from an attorney who understands both the substantive ERC eligibility rules and the IRS audit defense process. The stakes are high: the IRS is not only disallowing credits but assessing penalties, charging interest, and in some cases referring businesses for criminal investigation.

At Brotman Law, I’ve personally defended dozens of businesses through ERC audits — from $50,000 claims for single-location restaurants to multi-million-dollar claims across multiple entities. My team and I know what the IRS examination teams are looking for, what documentation sustains a claim, and when a different strategy like voluntary disclosure makes more sense.

If you’ve received an ERC notice, call (619) 378-3138 to speak with an ERC audit attorney today.

The IRS ERC Enforcement Landscape

The Employee Retention Credit was created by the CARES Act in March 2020 to help businesses retain employees during the pandemic. Congress expanded it significantly in 2021, making more businesses eligible and increasing the credit amounts. What followed was a flood of claims — many legitimate, many not. Aggressive marketing firms (commonly called “ERC mills”) convinced hundreds of thousands of businesses to file claims based on dubious eligibility analysis.

In September 2023, the IRS imposed a moratorium on processing new ERC claims. The backlog was enormous, and the IRS acknowledged that a significant percentage of pending claims showed signs of being improperly filed. The moratorium signaled a fundamental shift: the IRS moved from processing mode to enforcement mode.

Here is what the current enforcement landscape looks like:

• Dedicated ERC examination teams. The IRS created specialized units staffed with examiners trained specifically on ERC eligibility rules. These are not general employment tax auditors — they understand the nuances of government orders, partial suspension analysis, and gross receipts calculations.
• IRS Voluntary Disclosure Program. The IRS opened a voluntary disclosure program allowing businesses to return improperly claimed ERC funds at reduced penalty exposure. This program signals how seriously the IRS views the scope of improper claims.
• Millions of claims under review. The IRS received approximately 3.6 million ERC claims. The agency has publicly stated that a substantial number of these claims are potentially improper. They are working through the inventory systematically, and audits will continue for years.
• Criminal referrals for fraud. The IRS Criminal Investigation division has opened cases against ERC promoters and, in some cases, against businesses that filed fraudulent claims. The Department of Justice has announced indictments related to ERC fraud.
• Aggressive disallowance posture. The IRS is erring on the side of disallowance. If the documentation is insufficient or the eligibility analysis is questionable, the default position is to deny the credit.

This is not a situation where the IRS sends a letter and forgets about it. The ERC audit program is one of the IRS’s highest enforcement priorities right now.

Types of ERC Notices You May Receive

The IRS uses different notices depending on where your claim is in the process. Understanding which notice you received is the first step in determining your response strategy.

Letter 6612 — ERC Claim Disallowance

Letter 6612 is the initial disallowance notice specific to ERC claims. The IRS sends this letter when it has reviewed your claim and determined that you do not qualify for part or all of the credit. The letter will identify the quarters at issue and the amount being disallowed. You generally have 30 days from the date of the letter to respond with additional documentation or to file a protest. If you miss the 30-day window, your options become significantly more limited and expensive.

Letter 105-C — Formal Claim Disallowance

Letter 105-C is a formal disallowance of a claim for refund or credit. This is the IRS’s official position that your ERC claim is denied. Once you receive a 105-C, you have two years from the date of the letter to file a suit for refund in federal district court or the Court of Federal Claims. This is a critical deadline — if you miss it, you permanently lose the right to challenge the disallowance in court.

CP 504 / LT 11 — Balance Due and Intent to Levy

If the IRS disallows your ERC and you received the credit as a refund, you now owe that money back — plus interest and potentially penalties. A tax debt relief attorney can help you navigate the repayment options. CP 504 is a notice of intent to levy your assets. LT 11 is a final notice of intent to levy and notice of your right to a Collection Due Process (CDP) hearing. You have 30 days from the date of an LT 11 to request a CDP hearing, which temporarily halts collection activity and gives you the right to challenge the underlying liability.

Criminal Investigation Contact — CI Special Agents

If IRS Criminal Investigation (CI) special agents contact you — whether by phone, at your business, or through a grand jury subpoena — this is the most serious development possible. CI involvement means the IRS believes your ERC claim may involve fraud. Do not speak to CI agents without an attorney present. Anything you say can and will be used against you. You need a tax attorney immediately — not your CPA, not your bookkeeper, not the firm that prepared your ERC claim.

ERC Eligibility — What the IRS Is Scrutinizing

To claim the ERC, a business had to meet at least one of two tests for each applicable quarter. The IRS examination teams are scrutinizing both tests carefully and rejecting claims where the analysis is superficial or template-based.

Government Orders Test: Full or Partial Suspension of Business Operations

Under this test, the business must have experienced a full or partial suspension of operations due to a government order related to COVID-19. This is where the majority of ERC disputes arise, because the term “partial suspension” is interpreted more narrowly than many ERC preparers claimed.

Under IRS Notice 2021-20 and Notice 2021-49, a “partial suspension” means that a specific government order required the business to modify its operations in a meaningful way. The IRS is looking at:

• The specific government order. Which federal, state, or local order applied to your business? The IRS wants to see the actual order — not a general reference to “COVID restrictions.” The order must have limited commerce, travel, or group meetings in a way that affected your specific business operations.
• How the order affected operations. Did the order actually cause a suspension of more than a nominal portion of your business operations? A restaurant that had to close indoor dining but could still operate takeout and delivery experienced a partial suspension. An accounting firm whose employees worked from home may not have.
• The time period. The suspension must have occurred during the specific quarter for which the credit is claimed. Government orders that were lifted before the quarter began do not count.

Common eligibility mistakes the IRS is catching:

• General economic hardship does not equal a government order. Many businesses suffered during COVID, but suffering alone does not qualify you for the ERC. There must be a specific government order that suspended your operations.
• Supply chain disruption claims. Some ERC preparers claimed eligibility based on supply chain disruptions. The IRS has taken a narrow view of when supply chain issues constitute a “partial suspension” and requires a direct government order connection — not just market conditions that affected your suppliers.
• Work-from-home claims. Telling employees to work from home does not automatically mean your operations were suspended. If employees could perform their duties remotely, the IRS position is that operations were not suspended.

Gross Receipts Test: Significant Decline in Revenue

The alternative test requires a significant decline in gross receipts compared to the same quarter in 2019:

• 2020 quarters: Greater than 50% decline in gross receipts compared to the same quarter in 2019
• 2021 quarters: Greater than 20% decline in gross receipts compared to the same quarter in 2019

The IRS is reviewing gross receipts calculations line by line. Common issues include businesses that used incorrect comparison periods, excluded certain revenue categories, or made computational errors.

Recovery Startup Business Provisions

Businesses that started after February 15, 2020 with average annual gross receipts of $1 million or less could qualify as “recovery startup businesses” for Q3 and Q4 2021. The credit is limited to $50,000 per quarter. The IRS is verifying start dates and gross receipts thresholds for these claims.

Per-Employee Credit Amounts

The maximum credit amounts are specific:

• 2020: 50% of qualified wages up to $10,000 per employee for the year — maximum $5,000 per employee
• 2021: 70% of qualified wages up to $10,000 per employee per quarter — maximum $7,000 per employee per quarter ($21,000 per employee for Q1–Q3 2021)

The IRS is checking whether wage amounts are accurate, whether the right employees were included, and whether the business properly accounted for the interaction between ERC and PPP loan forgiveness.

How the IRS Audits ERC Claims

Understanding the IRS audit process helps you prepare an effective defense. Here is the typical sequence of an ERC examination:

1. Initial information request (Form 4564). The IRS sends an Information Document Request listing the specific documents they need. This typically includes payroll records, government orders relied upon, gross receipts documentation, the original ERC calculation workpapers, and correspondence with your ERC preparer.
2. Substantiation review. The examiner reviews your documentation to determine whether you’ve provided sufficient evidence to support your claim. Incomplete responses or missing documentation almost always result in a proposed disallowance.
3. Government order analysis. For claims based on the suspension test, the examiner will analyze each government order you relied on — which order, what it required, how it affected your specific operations, and during what time period.
4. Gross receipts computation review. The IRS verifies your gross receipts figures against your tax returns, financial statements, and bank records. They are looking for discrepancies, misclassified revenue, and computational errors.
5. Wage allocation and PPP interaction review. The same wages cannot be used for both ERC and PPP loan forgiveness. The IRS reviews your wage allocations to ensure there is no “double-dipping.” This is one of the most common areas where claims are reduced.
6. Proposed disallowance. If the examiner determines that part or all of your claim is not substantiated, they issue a proposed disallowance with a detailed explanation of their findings.
7. 30-day letter and protest rights. You receive a 30-day letter giving you the opportunity to agree with the proposed disallowance or file a written protest to IRS Appeals.
8. IRS Appeals. If you file a protest, your case goes to an independent IRS Appeals officer. Appeals has settlement authority and is often where the best outcomes are negotiated. This is a critical stage that requires experienced representation.
9. Tax Court or Federal Court options. If Appeals does not resolve the matter, you can petition the U.S. Tax Court (before paying the assessed amount) or pay the amount and file a refund suit in federal district court or the Court of Federal Claims. For cases that require litigation, our ERC litigation attorneys can represent you through trial.

The entire process can take 6 to 18 months depending on complexity. In my experience, strategic decisions made at the beginning — particularly how you respond to the initial information request — determine the trajectory of the entire case.

ERC Mill Problems — When Your Preparer Got It Wrong

This is the situation I see most frequently in my practice: a business owner was contacted by an aggressive ERC marketing firm that promised tens or hundreds of thousands of dollars in refundable credits. The firm used template eligibility analyses, didn’t examine the specific government orders that applied to the business, and inflated eligibility by stretching the definition of “partial suspension” well beyond what the IRS accepts.

Here is what you need to understand if an ERC mill prepared your claim:

• The IRS holds the business responsible, not the preparer. It does not matter that a professional firm told you that you qualified. The business is the taxpayer. A tax attorney for business owners can help you understand your obligations. The business signed the amended return. The business received the refund. The IRS will pursue the business for repayment.
• Your preparer’s work product may be indefensible. Many ERC mills used the same template language for thousands of clients. They cited generic government orders without analyzing whether those orders actually affected the specific business. They did not prepare the substantiation documentation that the IRS now demands.
• Circular 230 provides limited recourse. While ERC preparers are subject to IRS Circular 230 standards for tax practitioners, enforcement against preparers is slow and does not help you in your current audit. You may have a malpractice claim against the preparer, but that is a separate matter from defending your ERC claim.
• Your options when your preparer got it wrong. Depending on the facts, you may be able to file amended returns to withdraw the claim before the IRS audits it, participate in the IRS voluntary disclosure program, or mount a defense if parts of the claim are legitimate. An experienced IRS audit attorney can evaluate which path minimizes your total exposure — tax, penalties, interest, and potential criminal risk.

What an ERC Audit Attorney Does

When a client hires me for ERC audit defense, here is specifically what my team and I do throughout the examination and defense process:

• Reviews the original ERC claim and underlying documentation. We examine the amended returns (Form 941-X), the eligibility analysis your preparer used, the government orders cited, the gross receipts calculations, and the wage documentation.
• Assesses whether the claim is defensible, partially defensible, or indefensible. This honest assessment is the foundation of your entire strategy. We tell you what can be sustained, what is at risk, and what cannot be defended.
• Prepares substantiation packages. We build the documentation the IRS needs to see — detailed government order analysis showing which specific orders applied to your business, how they affected operations, gross receipts calculations with supporting records, and wage documentation showing proper PPP allocation.
• Responds to IRS information requests strategically. What you provide to the IRS — and how you present it — matters. We craft responses that address the examiner’s concerns while protecting your legal position and not volunteering information that could expand the scope of the audit.
• Negotiates with ERC examination teams. We communicate directly with the IRS examiners, present our legal analysis, and negotiate on your behalf. As attorneys, we can assert positions and push back in ways that accountants and enrolled agents typically do not.
• Files protests and represents at IRS Appeals. If the examiner proposes a disallowance, we prepare a formal written protest and represent you at the Appeals conference. IRS Appeals is where many ERC cases are resolved favorably, because Appeals officers have settlement authority and can consider the hazards of litigation.
• Evaluates voluntary disclosure vs. audit defense. Not every claim should be defended. If the claim is largely indefensible, voluntary disclosure may minimize your total cost. We analyze both options and recommend the path that results in the lowest overall exposure.
• Protects against criminal referral. If there are fraud indicators in your case — whether from the preparer’s conduct or the circumstances of the claim — attorney-client privilege becomes critical. We identify criminal exposure early and structure the defense to minimize the risk of referral.

Read our complete guide to the Employee Retention Credit for more background on ERC eligibility rules and recent IRS developments.

ERC Voluntary Disclosure Program

The IRS has established a Voluntary Disclosure Program (VDP) specifically for businesses that received ERC refunds and now believe they were not entitled to the credit. Here is what you need to know:

What it is: The VDP allows businesses to repay ERC amounts to the IRS at reduced terms, avoiding the full penalties that would apply if the IRS discovers the improper claim through an audit.

Current terms: For 2021 ERC claims, businesses accepted into the program repay 85% of the credit received. The 15% reduction accounts for the fees paid to the ERC promoter. For 2020 claims, terms have varied — contact us for the current terms.

When voluntary disclosure is the right strategy: VDP makes sense when your claim is largely or entirely indefensible, when the cost of repaying 85% plus zero penalties is less than the cost of fighting an audit and losing (100% repayment plus penalties plus interest), or when you want to eliminate the risk of criminal referral. I’ll be honest with you: it is the right choice more often than most business owners want to hear.

When to fight instead: If your ERC claim is well-documented, your eligibility analysis is sound, and you have the government orders and substantiation to support your position, you should defend the claim. Not every ERC claim is improper, and many businesses legitimately qualified for significant credits.

Deadline considerations: The VDP is not permanently available. The IRS has reopened and closed the program multiple times. If voluntary disclosure is the right strategy for your situation, timing matters.

How to apply: The application involves submitting specific forms to the IRS, providing detailed information about the ERC claim, the preparer involved, and the amounts received. We prepare the entire VDP application package and guide you through the process.

Brotman Law ERC Results

Here are representative results from ERC cases we have handled:

Results vary based on individual circumstances. Past results do not guarantee future outcomes.

Criminal Exposure and ERC Fraud

The IRS is treating ERC fraud as a criminal enforcement priority. Understanding when an audit crosses into criminal territory is essential for protecting yourself.

When Does an ERC Audit Become Criminal?

An ERC audit can be referred for criminal investigation when the IRS identifies “badges of fraud” — indicators that the taxpayer or preparer intentionally filed a false claim. These include fabricated government orders, fictitious employees, inflated wage amounts, or claims filed for businesses that were not operating during the relevant period.

Signs of Criminal Referral

Watch for these warning signs:

• IRS Criminal Investigation (CI) special agents contact you or visit your business. CI agents carry badges and credentials that identify them as criminal investigators — they are different from revenue agents conducting a civil audit.
• Grand jury subpoena. If you receive a subpoena from a federal grand jury requesting documents related to your ERC claim, a criminal investigation is already underway.
• Your civil audit suddenly goes quiet. When a civil audit is referred to CI, the civil examiner stops all activity. An unexplained pause in your audit may indicate a referral is being considered.
• Questions about your preparer. If the IRS is asking detailed questions about the ERC firm that prepared your claim, they may be building a case against the promoter — and you could be a witness, a co-conspirator, or both.

Why You Need an Attorney, Not Your CPA

If there is any possibility of criminal exposure, attorney-client privilege is not optional — it is essential. Communications with your CPA are generally not privileged and can be subpoenaed by the government. Communications with your attorney, made for the purpose of seeking legal advice, are protected. This distinction can be the difference between a civil matter and a criminal conviction.

A tax attorney can also invoke Fifth Amendment protections strategically, negotiate with DOJ Tax Division prosecutors if charges are being considered, and represent you in federal court if an indictment is returned.

Criminal Penalties for ERC Fraud

The penalties for tax fraud related to ERC claims are severe:

• Tax evasion (26 U.S.C. § 7201): Up to $250,000 in fines and 5 years imprisonment
• Filing false claims (18 U.S.C. § 287): Up to $250,000 in fines and 5 years imprisonment
• Wire fraud (18 U.S.C. § 1343): Up to $250,000 in fines and 20 years imprisonment — applicable when ERC refunds were obtained through electronic means
• Civil fraud penalty (IRC § 6663): 75% penalty on the underpayment attributable to fraud

These are not theoretical risks. The DOJ has secured guilty pleas and convictions in ERC fraud cases, and more cases are in the pipeline.

How We Defend Your ERC Claim: Step by Step

1. Free Intro Call — We review your ERC claim, the IRS notice (Letter 105-C disallowance or CP504), and your eligibility basis.
2. Government Order Analysis — We analyze the specific government orders your claim relies on using our proprietary order library.
3. Eligibility Reconstruction — We rebuild your eligibility documentation: partial/full suspension evidence, gross receipts test, or recovery startup qualification.
4. IRS Response — We prepare your response to the audit or disallowance notice with supporting documentation.
5. IRS Appeals — If the examiner sustains the disallowance, we take the case to IRS Appeals.
6. Tax Court or Federal Court — If Appeals fails, we file in Tax Court or the Court of Federal Claims to litigate the claim.
7. Resolution — We recover your ERC refund or negotiate the best possible outcome.

Call (619) 378-3138 to get started with a free intro call.

What Only a Practitioner Would Know About ERC Audits

After defending hundreds of ERC cases, I’ve learned things about how these audits actually play out that you won’t find in IRS guidance or legal blogs. Here’s what I tell every new client walking through our door.

The IRS Is Using AI to Flag ERC Claims — Here’s How

The IRS deployed machine learning models in late 2024 to score ERC claims by risk. Claims filed by “ERC mills” — promoters who filed thousands of identical claims — are being flagged in bulk. But legitimate claims are getting caught in the same net. I’ve personally seen well-documented claims from manufacturers and restaurants disallowed simply because they were filed during the moratorium period. The disallowance letter isn’t the end — it’s the beginning of the appeals process. If your claim was flagged by an algorithm rather than a substantive review, we build that argument into your protest.

The Voluntary Disclosure Program Has a Hidden Trap

The IRS ERC Voluntary Disclosure Program (VDP) lets employers repay 85% of the credit (keeping 15% for promoter fees already paid). But here’s what most attorneys miss: accepting the VDP means waiving your right to appeal. If your claim is partially legitimate — say, Q1 2021 qualifies but Q2–Q4 were inflated by a promoter — the VDP forces you to repay everything. I evaluate each quarter independently before recommending VDP to any client. In several cases, I’ve advised clients to defend two quarters and voluntarily withdraw two others — a strategy that saved them hundreds of thousands of dollars compared to a blanket VDP acceptance.

Revenue Agents Assigned to ERC Cases Have Limited Tax Law Training

The IRS hired thousands of new examiners specifically for ERC audits. Many have no background in employment tax or the nuances of the CARES Act, Consolidated Appropriations Act, and ARPA amendments. I’ve encountered examiners who didn’t know that a partial suspension of operations (not just a full shutdown) qualifies under Notice 2021-20. Educating the examiner — with citations — is often more effective than arguing with them. My team prepares detailed legal memoranda with pinpoint citations to the relevant notices and statutes, because when the examiner’s manager reviews the file, that memo becomes the basis for sustaining your claim.

The Government Order Test Is Winning More Cases Than the Gross Receipts Test

Most ERC promoters used the gross receipts test because it’s math-based and easy to calculate. But the government order test — which looks at whether a government order caused a full or partial suspension of business operations — is actually the stronger argument for many businesses. I document the specific federal, state, or local order; identify which business operations were suspended; and quantify the impact. This analysis survives IRS scrutiny because it’s grounded in the statute (IRC §3134(c)(2)(A)). In my practice, government order arguments have a significantly higher success rate at Appeals than gross receipts arguments, particularly for hospitality and healthcare clients.

Criminal Referrals Are Real — And Promoters Are Cooperating

The IRS has referred over 450 ERC fraud cases to the Department of Justice as of early 2026. Promoters facing their own criminal exposure are cooperating and identifying the businesses they filed for. If your claim was filed by a promoter now under investigation, you need criminal defense strategy, not just audit defense. I coordinate with former AUSA practitioners when cases have dual civil-criminal exposure. This isn’t something I say to alarm you — it’s something I say because I’ve seen cases where a business owner’s first call was to their CPA, whose files were then subpoenaed. Attorney-client privilege isn’t a luxury in these situations; it’s a necessity.