The federal government has officially ended the Employee Retention Credit (ERC) program while significantly increasing penalties for improper claims under a new law signed by President Donald Trump.
The legislation, part of the One Big Beautiful Bill Act (OBBBA), includes a provision—Section 70605—that retroactively disqualifies ERC refund claims submitted after January 31, 2024. Although ERC claims were initially accepted through April 15, 2025, the new cutoff date applies retroactively, disqualifying even claims submitted as far back as February 2023. The Internal Revenue Service (IRS) now has the authority to deny refunds for any claim that falls outside this revised submission window, even if it was originally filed within the previous deadline.
In addition, the IRS’s audit window for ERC-related claims has been extended from three years to up to six years. The agency may now also deny related income tax deductions if wages were improperly classified under the ERC program.
A major focus of the new enforcement is on preparers and advisers. Under the new law, CPAs, tax professionals, and third-party filing companies that help submit false ERC claims will face harsher consequences. A base penalty of $1,000 per improper filing will apply when they violate IRS due diligence rules. In more serious cases, where the preparer earns income from the ERC filing and is found to have promoted or facilitated fraud, the penalty increases to the greater of $200,000 or 75% of the gross income earned from that activity.
Tax professionals anticipate a wave of IRS investigations into businesses that submitted questionable ERC claims through aggressive third-party firms. Some of these companies advertised heavily and encouraged small business owners to file claims regardless of eligibility.
James Cha, a Certified Public Accountant (CPA), noted, “ERC fraud has been a growing concern for some time. Many small business owners were misled by exaggerated marketing and filed claims even though they didn’t qualify. These new rules are a necessary correction.”
Experts advise that business owners should consult qualified professionals before submitting tax credit claims, especially under newly enacted or complex programs like the ERC.
BY WONHEE CHO [cho.wonhee@koreadaily.com]
