ERC Refunds: Administrative Path vs. Litigation

Why Businesses Are Still Waiting on ERC Refunds

The Employee Retention Credit (ERC) was designed to provide financial relief to businesses impacted by the COVID-19 pandemic. For many, it represented not just tax savings, but a financial lifeline to cover payroll, stabilize operations, and keep the doors open.

But years later, thousands of businesses are still waiting on their ERC refunds. Unlike tax returns, which must be processed within defined timelines, ERC refund claims don’t have statutory deadlines. That means the IRS can hold them indefinitely. Add in leadership turnover, staffing cuts, and an overwhelmed review process, and many businesses have been left in limbo — waiting three or even four years for relief they were promised.

This leaves business owners at a fork in the road:

Stay in the administrative process and continue waiting, with no clear end in sight.
Or pursue litigation, which forces the government to respond and brings resolution on a defined timeline.

The Administrative Path: Endless Waiting and Growing Risk

On the surface, staying in the administrative process feels like the least disruptive option. After all, the IRS will eventually get to your claim — right? The problem is that there’s no legal requirement for when that has to happen.

Why ERC Refunds Get Stuck

No statutory deadline: The IRS is under no obligation to process ERC refunds within a specific timeframe.
Severe backlogs: Staffing cuts and leadership churn mean fewer agents reviewing claims and more denials issued without explanation.
Scrutiny of certain claims: Larger claims and businesses in certain states are facing closer review, which adds even more delay.

A Frozen Pipeline

On top of backlogs and staffing issues, Congress passed what has been called Trump’s Big Beautiful Bill, which prohibited the IRS from processing any ERC refund claims filed after January 31, 2024.

That means if your business filed after that date, your claim isn’t just delayed — it’s effectively frozen until further notice. This freeze also signals the government’s increasing caution toward ERC claims, making it clear they are scrutinizing the program more closely.

The Risks of Waiting

Indefinite delays: Many businesses have already been waiting three to four years with no movement.
Increased denial risk: The longer a claim sits, the more likely it is to be denied without a clear rationale.
Clawback exposure: Even if a refund is eventually paid, the IRS now has six years to audit and claw back ERC refunds. Businesses that wait could still face uncertainty years down the road.

The Business Impact

These delays don’t just cause frustration — they stall real-world decisions. Business owners have had to put off hiring, expansion, or capital investments because their ERC refunds remain tied up in administrative limbo.

The Litigation Path: Forcing Resolution Through the Courts

For businesses that don’t want to remain in IRS limbo, litigation provides a way to move forward. Filing an ERC refund lawsuit transfers your claim out of the administrative process and into federal court, where timelines and rules of procedure ensure progress.

What Litigation Involves

Filing a lawsuit: Typically in federal district court or the Court of Federal Claims.
Case review: A neutral federal judge evaluates your claim, not IRS auditors.
Government representation: The Department of Justice’s Civil Tax Division, not the IRS, handles ERC refund litigation.
The 60-day clock: Once a lawsuit is filed, the government has 60 days to respond — a stark contrast to the unlimited delays in the administrative process.

Benefits of Litigation

Forces the IRS to act: A lawsuit compels the government to engage with your claim.
Neutral review: Your case is decided by a judge, removing it from IRS backlog and delay.
Structured timeline: Filing a lawsuit initiates deadlines and keeps the case moving forward.
Settlement protection: Once settled, your refund is final — shielding it from clawbacks during the extended 6-year audit window.

Common Misconceptions

“Litigation will trigger an audit.” False. Lawsuits are handled in court, and the IRS does not retaliate against businesses for exercising their rights.
“Litigation is only for big corporations.” In reality, mid-sized businesses with claims of $250k–$500k or more are among the best candidates for this option.
“Litigation means fighting IRS agents in court.” Also false. The IRS itself is not present; the DOJ defends, and the judge makes the decision.

Why Businesses Choose Litigation

For companies that have already been waiting years, litigation offers something the administrative process cannot: accountability. It creates a defined process, sets deadlines, and provides the potential for settlement that protects refunds from future clawbacks.

The Fork in the Road: Choosing Your Path

Every business waiting on an ERC refund eventually reaches a decision point: keep waiting in the administrative process, or pursue litigation. Each path carries its own realities and risks.

Path 1: The Administrative Route

Timeline: No legal deadline; claims can remain unprocessed indefinitely.
Risk: Higher chance of delays or denials without clear explanations.
Clawback Exposure: Even if paid, refunds can be audited and clawed back for up to 6 years.
Business Impact: Ties up cash flow, delays hiring and investment, and creates ongoing uncertainty.

Path 2: The Litigation Route

Timeline: Filing a lawsuit starts a 60-day clock for the government to respond, moving your claim forward.
Risk: Litigation introduces legal steps, but it ensures your case is reviewed by a judge rather than sitting in backlog.
Clawback Exposure: Once resolved through settlement or judgment, your refund is final and shielded from clawbacks.
Business Impact: You’ll finally recover the refund your business has been waiting for. In many cases, accrued interest can also help offset the cost of litigation.

Making the Choice

The right path depends on your business’s needs, claim size, and tolerance for uncertainty. For some, waiting may feel easier in the short term. For others — especially those with larger claims or urgent cash flow needs — litigation offers accountability, structure, and resolution the administrative process cannot provide.

Why Businesses Are Increasingly Choosing Litigation

After years of waiting, many businesses are reevaluating whether staying in the administrative process is worth the uncertainty. Litigation has become an option because it provides structure where the IRS does not.

Mounting Delays

Some businesses have already been waiting three to four years for ERC refunds, with no clear timeline for resolution. On top of that, Congress passed Trump’s Big Beautiful Bill, which froze processing for all claims filed after January 31, 2024. That left many businesses with refunds that aren’t just delayed — they’re completely blocked from moving forward.

Defined Timelines

Litigation offers something the administrative path cannot: accountability. Filing a lawsuit starts a 60-day clock for the government to respond. Even if the process takes time, it comes with deadlines that prevent claims from sitting untouched for years.

Protection Against Clawbacks

Under the new six-year audit window, even paid refunds can be clawed back. Litigation adds protection, because once a case is resolved through settlement or judgment, the refund is final and shielded from future clawbacks.

Who Should Consider Litigation?

Litigation isn’t the right move for every business, but it is worth serious consideration if:

Your ERC claim is $250,000 or more (ideally $500,000+).
Your business is human-capital heavy or depends on a physical location.
You’ve been waiting 6+ months with no refund or clear response from the IRS.

For these businesses, litigation isn’t just a legal option — it’s a practical strategy to bring long-delayed refunds to resolution. The question then becomes: which path makes the most sense for your situation, and how do you prepare to take it?

How Brotman Law Helps Businesses Navigate This Decision

ERC refund claims are complex, and litigation adds another layer of difficulty — especially for businesses that filed through PEOs or operate across multiple states. At Brotman Law, we help businesses:

Evaluate their options: We review your claim, documentation, and circumstances to determine whether litigation makes sense for your situation.
Build a defensible file: Our team prepares supporting materials such as legal opinion letters, calculations, and government orders that link directly to your business operations.
Manage complexities: From PEO-filed claims to multi-state operations, we’ve seen the challenges and know how to navigate them.
Pursue litigation when needed: We initiate lawsuits in federal court to move claims forward, enforce accountability, and protect refunds from clawbacks.

Our role isn’t just to litigate — it’s to make sure you’re in the strongest possible position, whichever path you choose.

Taking the Next Step Toward Your ERC Refund

The ERC refund process has left thousands of businesses in limbo. With no deadlines in the administrative process, claims can sit indefinitely, creating uncertainty and risk. Litigation provides an alternative path — one that forces government action, sets timelines, and offers protection against future clawbacks.

For many businesses, the choice is clear: keep waiting in a stalled system, or take action to move forward with certainty.

If your ERC refund has been delayed more than six months, now is the time to explore your options. Contact Brotman Law to schedule a consultation and learn whether litigation is the right step for your business.

Learn More About the Litigation Process

Want to understand the steps involved in suing the IRS for your ERC refund? Read our in-depth guide on The ERC Litigation Process: What to Expect When Suing the IRS to get a clearer picture of how legal action can help you secure your refund faster.