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The Squeaky Wheel Gets the Grease? Employers Should Consider Filing Lawsuits to Obtain ERC Refunds

By Jeffrey M. Glassman and Joel N. Crouch on September 21, 2023
Just last week, the IRS announced that it was no longer processing any new Employee Retention Credit (ERC) claims amid a surge in questionable claims. We wrote about the IRS moratorium here.

While there may be questionable claims being filed, there are plenty of legitimate claims that should be processed and refunded to employers. Those employers may very well need their ERC refund money for important business reasons. Or perhaps they just want their money back—the reason is immaterial, as the money is rightfully due to the employers. Employers should not have to wait in perpetuity for the IRS to refund what amounts to overpayments towards prior-year employment taxes. (The ERC is a refundable tax credit that applies against employment taxes).

In general, the Tax Code allows taxpayers (including employers) to file a lawsuit in federal district court or the U.S. Court of Federal Claims if the IRS fails to process a refund claim within six months. Employers who have been patiently waiting on the sidelines for the IRS to process their ERC refund claims should consider filing a lawsuit to force the IRS to act. While further analysis will be needed to confirm that the particular employer can and should file a lawsuit, we have found that there is often tremendous value in using all available remedies—including sometimes filing lawsuits—to obtain recourse from the government. Indeed, sometimes court deadlines and the creation of more work for the government leads the government to prioritize a particular case. We regularly notice that when dealing with the IRS, the squeaky wheel gets the grease.

Any employer considering filing a lawsuit should consult with a tax litigation attorney as soon as possible. There are limitations on the amount of time for a lawsuit to be filed.

If you have any questions about this article or any other tax matter, please contact Jeffrey M. Glassman at 214-749-2417 or jglassman@meadowscollier.com or Joel N. Crouch at 214-749-2456 or jcrouch@meadowscollier.com.