What’s Happening With the Employee Retention Credit in 2025?
The Employee Retention Credit (ERC) was a financial safety net during the COVID-19 crisis. Now, in 2025, a sweeping new tax proposal — dubbed the “One Big Beautiful Bill” — threatens the security of that credit.
Under proposed legislation, the IRS could retroactively invalidate ERC claims, expand audits, and aggressively pursue clawbacks. If you’ve filed or received an ERC refund, here’s why now is the time to act — and how litigation can protect your business.
Key Provisions in the New ERC Enforcement Legislation
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Retroactive Deadline: ERC claims filed after January 31, 2024, may be retroactively disallowed — even if paid.
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Extended Audit Period: The IRS would have six years to audit ERC claims.
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Enforcement Penalties: Targets ERC promoters, but businesses may face indirect fallout.
This means the IRS could demand repayment of refunds — potentially with interest and penalties.
What Is an IRS ERC Clawback — and Could It Affect Me?
An ERC clawback happens when the IRS determines a refund was improperly issued and demands repayment. This can include:
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Repayment of the ERC amount
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Accrued interest and penalties
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IRS audits of your business finances
Even businesses that followed the rules may be at risk under the new law.
Why Filing a Lawsuit Stops the IRS From Clawing Back Your Refund
The most powerful defense against a clawback is filing a refund lawsuit. Here’s why litigation offers real protection:
Court Judgments Are Final
When a court grants your ERC refund, that ruling is binding. The IRS can’t revisit it.
Settlements Are Enforceable
Even a pre-trial settlement with the Department of Justice (DOJ) includes a legal release of claims, blocking future IRS action.
Litigation Ends Limbo
Many claims are in review or delayed. Litigation forces a resolution and prevents further delay.
How ERC Refund Litigation Works
To sue for your ERC refund, one of two conditions must be met:
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Six months have passed since filing Form 941-X
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The IRS has formally denied your claim
Steps in the ERC Lawsuit Process
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Confirm eligibility: Check filing date or denial status.
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Gather evidence: Payroll records, PPP info, financial statements, and eligibility documentation.
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File complaint: Submit in U.S. District Court or U.S. Court of Federal Claims.
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Negotiate or proceed to trial: DOJ evaluates claim and often settles.
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Get final resolution: Judgment or settlement secures your refund.
Why Now Is the Time to File
If you’ve received your ERC refund, don’t assume you’re safe. With the IRS empowered to reopen and claw back claims for six years, litigation may be your only guaranteed protection.
Litigation benefits:
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Protects your refund from future clawback
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Accelerates resolution of pending claims
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Locks in legal standing before new laws take effect
What If I Used a Third-Party Preparer?
Even if a consultant or promoter filed your ERC, you still have the right to litigate. The focus is on your eligibility — not who prepared the return.
Does Litigation Speed Up My ERC Refund?
Yes, in many cases. Filing suit compels DOJ to review and may lead to faster settlement or payment — especially for claims caught in long-term review.
Conclusion: Litigation Is the Strongest Defense Against IRS ERC Clawbacks
The IRS is increasing its scrutiny of ERC refunds, and Congress is helping expand their power. If your refund was properly claimed, you shouldn’t lose it because of political shifts or retroactive enforcement.
ERC refund litigation gives you peace of mind, legal clarity, and financial protection.
Need Help Protecting Your ERC Refund?
Contact Brotman Law today to speak with an experienced ERC litigation attorney. We’ll evaluate your case, prepare your file, and fight for your refund in court — before it’s too late.
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.
Contact us today to schedule a consultation and take the first step toward recovering your ERC refund.