When the ERC Promoter Is Indicted, the Business Owner Is Still on the Hook

Across the communities we serve in Middle Tennessee and Mid-Michigan, a quiet pattern has emerged in the wake of the pandemic-era Employee Retention Credit. The aggressive marketing has gone silent. The pop-up “ERC shops” have closed their websites. And in many cases, the people who sold the credit are now under criminal investigation.

The businesses that filed the claims, however, are still very much on the hook.

That distinction is worth sitting with for a moment, because it explains the position many otherwise careful business owners now find themselves in. The IRS is running two parallel tracks at once: a civil track aimed at the businesses that claimed the credit, and a criminal track aimed at the promoters, preparers, and refund mills who pushed the claims out the door. A promoter can be indicted, convicted, and sent to prison, and none of that resolves the civil exposure of the employer whose name appears on the Form 941-X.

We see this most often in two settings. First, with successful business owners who agreed to an ERC analysis because a trusted-feeling vendor said the credit was straightforward and the contingent fee was painless. Second, with the CPAs and financial advisors who serve those owners and now find themselves quietly asking whether a client’s old ERC claim is going to come back around. Both groups are right to be paying attention.

The Credit Was Real. Much of the Marketing Was Not.

The Employee Retention Credit was a legitimate piece of pandemic relief, enacted to help eligible employers that continued paying workers through real disruptions. The credit itself is not the problem. What turned a sensible relief provision into a compliance crisis was the wave of marketers, refund shops, and opportunistic preparers who treated a fact-specific tax credit like a mass-marketed consumer product.

The pitches were familiar to anyone who watched television, listened to talk radio, or checked the mail in 2022 and 2023. “Free money.” “Risk-free.” “Every business qualifies.” Contingent fees of fifteen, twenty, even twenty-five percent of the refund. Eligibility memos generated before anyone had meaningfully looked at payroll records, gross receipts, or the actual government orders in effect. Theories built almost entirely on supply-chain disruption. Wages double-counted with PPP forgiveness. Quarters claimed for businesses that did not yet exist.

The IRS has now identified those patterns publicly and treats them as red flags. Many of the claims filed in that environment will not survive scrutiny. Some are being denied outright. Others are being clawed back through audit. And in the most egregious cases, the people who orchestrated the claims are being prosecuted.

How the IRS Is Recovering Improper Claims

The civil enforcement toolkit has grown considerably, and it is worth understanding what is actually in it.

When the IRS disallows an ERC claim, it issues Letter 105-C or 106-C. Those letters quietly start a two-year clock for the taxpayer to either resolve the matter administratively or file a refund suit in federal court. The trap, and we have seen it catch capable people, is that requesting review by IRS Appeals does not pause that clock. A taxpayer who routes the dispute through Appeals and lets two years pass can lose the right to recover the refund even if the underlying claim was meritorious all along. In April 2026 the IRS announced a streamlined Form 907 process for taxpayers with six months or less remaining on that period, but the underlying point stands: the deadline is real, and it does not wait for anyone.

Audits are the second front. The IRS has stated that thousands of ERC claims are under examination, with Forms 941 and 941-X being reviewed for everything from the underlying eligibility theory to the wage calculations to the coordination with PPP forgiveness. The consequences range from repayment of the credit, to accuracy-related penalties, to civil fraud penalties in serious cases, and in egregious matters to referral to IRS Criminal Investigation.

For claims that have not yet been paid, a withdrawal process remains available. A properly executed withdrawal is treated by the IRS as though the claim was never filed at all, with no interest or penalties on the withdrawn amount. The process can even reach refund checks that have been received but not yet cashed or deposited. There are nuances, particularly where a third-party payer filed combined claims for multiple clients, but the door is still open for many employers whose claims are sitting in the IRS backlog.

The two formal ERC Voluntary Disclosure Programs that allowed eligible employers to repay a discounted percentage of paid claims—eighty percent under the first program and eighty-five percent under the second—are now closed. They were useful tools for non-willful errors, and many businesses that came forward through them resolved their exposure cleanly. The window has shut, but informal correction through amended filings and other procedures may still be appropriate depending on the facts.

Finally, Congress tightened the rules legislatively through the One Big Beautiful Bill Act. Effective July 4, 2025, ERC credits and refunds for the third and fourth quarters of 2021 are generally disallowed unless the underlying claim was filed by January 31, 2024. The assessment period for ERC claims has been extended to April 15, 2028, or six years from filing if later. The erroneous refund penalty has been expanded to reach employment tax claims. And a new due-diligence penalty has been imposed on certain promoters, generally one thousand dollars per failure. Whatever else those provisions accomplish, they signal that the government is not treating improper ERC activity as an isolated cleanup. It is now a sustained enforcement priority.

The Promoters Are Being Prosecuted in Earnest

The criminal track has produced real sentences. The IRS has reported hundreds of criminal ERC investigations, with COVID-related tax and money-laundering matters potentially totaling close to nine billion dollars. A Nevada defendant was sentenced to fifty-four months in federal prison and ordered to pay more than twenty-six million dollars in restitution after the government alleged she helped file more than twelve hundred false employment tax returns. A New Jersey defendant received twelve years and more than fifty-five million dollars in restitution in a scheme involving over nineteen hundred returns and roughly one hundred seventy million dollars in claimed credits. IRS Criminal Investigation has reported hundreds of ERC cases initiated, and the typical charges in these matters—conspiracy, aiding the preparation of false returns, mail and wire fraud, money laundering, tax evasion—will be familiar to anyone who follows federal white-collar enforcement.

None of that, however, fixes the civil exposure on the employer’s account.

What This Means for the Business Owner

The most important point to absorb is also the least comfortable one. The business owner whose name and EIN appear on the return remains responsible for the claim, regardless of who prepared it, regardless of who sold it, and regardless of what assurances were given at the time. A promoter’s prosecution may produce restitution years from now, but it does not pause an audit, it does not stop a disallowance letter, and it does not extend a refund-suit deadline.

In practice, the businesses that resolve these matters cleanly tend to share a few habits.

They stop relying on the promoter. If the person who sold the claim is still insisting that every business qualifies, that the IRS is mistaken, or that IRS letters can safely be ignored, that is itself a signal to bring in independent counsel.

They commission an honest eligibility review from an advisor who is not paid based on the size of the refund. The review examines which quarters were actually claimed, whether there was a qualifying government order in effect, whether gross-receipts thresholds were genuinely met, how the wages interacted with PPP forgiveness and other credits, and whether the calculations actually match the rules for the specific quarters at issue. A promoter’s memo and a defensible eligibility analysis are not the same document.

They preserve documentation while they still can. Gross-receipts records, the specific government orders relied upon, payroll detail tied to qualified wages, health plan expense allocations, and the interaction with other relief programs all need to be in a file folder, not a memory. The absence of that documentation is itself diagnostic.

For unpaid claims still sitting at the IRS, they evaluate withdrawal promptly. For paid claims, they evaluate whether amended filings or other corrective procedures are appropriate. They calendar the two-year deadline on any Letter 105-C or 106-C the day it arrives. They respond to IRS correspondence on the IRS’s timeline rather than their own. And where appropriate, they consider whether reporting an abusive promoter, through Form 14242 or Form 3949-A, is the right step.

These are not dramatic interventions. They are the same kinds of methodical, documented, deadline-driven habits that resolve most tax controversies. The difference is that ERC matters tend to involve large dollar figures and unfamiliar deadlines, and waiting rarely improves the position.

A Note for Advisors

CPAs, financial advisors, and attorneys in Murfreesboro, Nashville, Franklin, and Rutherford County, and the colleagues we work with in Midland and Saginaw, are often the first to notice that an ERC claim does not quite add up. A client mentions a refund that arrived without an obvious basis. An accountant inherits a return season and finds a 941-X they did not prepare. An estate planner discovers an unresolved IRS notice in a folder of business records.

These are situations in which an early, quiet conversation tends to produce better outcomes than a later, urgent one. When the facts are still recoverable and the deadlines have not yet expired, options exist. When they have, they often do not.

Closing Thought

The ERC was a legitimate program that attracted illegitimate promotion, and the government is now pursuing both sides of that story at once. Businesses that filed in good faith on bad advice are not without options, but the options narrow with time. A promoter’s indictment is news. It is not a resolution.

We are always happy to think these situations through with a business owner or an advisor who wants to understand where a particular claim stands and what, if anything, ought to be done about it. In most cases, the path forward is calmer than the headlines suggest, and quieter than the marketing ever was.