Promoter structures library
Employee Retention Credit Mills
Sold as: "ERC", "ERTC", "the COVID refund the government owes you", "up to 26,000 dollars per employee", "everyone qualifies"
Technical name: Employee Retention Credit, CARES Act Sec. 2301 as amended
If a firm told you everyone qualifies, took 20 percent of the refund, and would not sign the 941-X, you have a six-year statute and a two-year clock on any disallowance notice sitting in your file.
Classification B. Real tax law with a real benefit. Promoters break it.
The pitch
Your business was partially suspended by COVID guidance, so you qualify for up to 26,000 dollars per employee. Everyone qualifies. Nothing is due up front: the firm takes a percentage of the refund when it arrives, and files the amended Form 941 for you.
How it played out
- date
9/14/2023
- event
Processing moratorium on new claims
- date
10/19/2023
- event
Claim Withdrawal Program opens. STILL OPEN TODAY.
- date
3/22/2024
- event
Voluntary Disclosure Program round 1 closes. 2,600+ applications, roughly 1,090,000,000 dollars disclosed, 80 percent repayment
- date
7/31/2024
- event
Letter 105-C disallowances begin. Roughly 28,000 notices, roughly 5,000,000,000 dollars in claims
- date
8/15/2024
- event
Roughly 30,000 recapture letters. VDP round 2 opens at 85 percent repayment
- date
11/22/2024
- event
VDP round 2 closes. NO VDP IS OPEN NOW.
- date
7/4/2025
- event
OBBBA enacted
- date
10/22/2025
- event
IRS FS-2025-7 confirms OBBBA restrictions
- date
Week ending 8/1/2026
- event
Roughly 17,300 claims remain: 2,300 under review, 2,900 pending payment or disallowance, 4,400 under audit, 6,100 awaiting review of disallowance responses, 1,600 at Appeals
Where it breaks
Manufactured partial suspension from generic OSHA or CDC guidance rather than an actual governmental order. Supply-chain claims that do not meet the narrow test. Failure of the gross receipts test. Double-counting PPP wages. Owner and related-party wages under Sec. 51(i)(1). Failure to reduce the wage deduction under Sec. 280C(a).
What OBBBA changed
- Retroactive disallowance of Q3 and Q4 2021 claims filed after January 31, 2024 if not refunded before July 4, 2025. Q1/Q2 2021 and 2020 claims are unaffected.
- Six-year statute of limitations on assessment, with a matching six years for the taxpayer to claim the offsetting wage deduction
- 20 percent penalty on erroneous refund claims via expanded Sec. 6676
- 1,000 dollar per failure due diligence penalty on COVID-ERTC promoters, PEOs exempt, effective for advice provided on or after July 5, 2025
Critical deadline trap
Under IRC Sec. 6532(a), a taxpayer has TWO YEARS from the date of a notice of claim disallowance to file a refund suit, reach agreement, or execute an extension. Miss it and the refund is barred even if the claim was valid. The IRS now issues Notice CP320B warning of the approaching deadline and directs taxpayers to Form 907, which must be signed by BOTH taxpayer and IRS before expiry. Appeals averaged 337 days from request to resolution in FY2025.
What it costs you if it is wrong
The credit is repaid, and OBBBA's expanded Sec. 6676 adds 20 percent of the excessive amount, with no cap, for claims filed after July 4, 2025. The assessment window is six years. The trap is Sec. 6532(a): once a notice of disallowance issues you have TWO YEARS to file suit, reach agreement, or execute an extension, and missing it bars the refund even where the claim was good.
Red flags specific to this structure
- The firm told you everyone qualifies
- The fee is a percentage of the refund
- The preparer would not sign the Form 941-X
- Eligibility was decided in a phone call
- Nobody asked for the government order that suspended your operations
- The income tax returns were never amended for Sec. 280C
Questions to ask the person selling this
Take these into the next meeting. Someone selling the legitimate version answers them without difficulty.
- 1Which specific government order suspended my operations? Show me the document.
- 2Will you sign the Form 941-X as preparer?
- 3Is your fee a percentage of the refund?
- 4What is in the eligibility file, and how long did the analysis take?
- 5Have owner and related-party wages been excluded under Sec. 51(i)(1)?
- 6Who amends my income tax returns to reduce the wage deduction under Sec. 280C?
Which of the Seven Markers this trips
A promised deduction or savings multiple
Contingent or percentage-of-savings fees on an original return position
The legitimate version
A business with a real, documented full or partial governmental suspension order, or a genuine gross receipts decline.
What distinguishes it
- The preparer signed the Form 941-X
- The fee is hourly or flat, not contingent
- Eligibility analysis took more than minutes and is in the file
- Owner and related-party wages excluded
- The file contains the actual government order
- The Sec. 280C wage deduction was reduced on amended income tax returns
What the courts have done
How this has actually gone for the people who bought one.
Enforcement
DOJ announced its largest ERC indictment January 22, 2025 in E.D.N.Y.: seven defendants, 8,000+ claims, over 600,000,000 dollars in fraudulent ERC and sick and family leave credits, using inflated employee counts, false wages, and VPNs to conceal involvement. Tiffany Williams sentenced May 13, 2026 to 36 months on one wire fraud count, roughly 45,000,000 dollars in actual loss. IRS-CI: 588 investigations, 5,600,000,000 dollars in potentially fraudulent claims, 108 federal charges through 9/30/2025.
Typical fees
Contingent fees of 15 to 25 percent of the refund, often with large upfront components and refund-anticipation loans. The IRS lists percentage-based and large upfront fees as warning signs.
Holding one of these, or being pitched one?
The diagnostic work is worth doing before the return gets filed rather than after. That is a conversation, not an engagement.
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