IRS Ramps Up ERC Audits in 2026: What the New Law Means If Your Claim Is Still Open
6 min read · By Jonathan C. Do, Esq. · May 2026
The Employee Retention Credit was sold to thousands of business owners as "free pandemic money." In 2026 the bill is coming due. A new federal law has handed the IRS a longer audit window, bigger penalties, and a clear mandate to claw back claims it considers improper — and if your ERC refund is still pending or already in your bank account, you need to understand what changed.
What the One Big Beautiful Bill Act changed
The One Big Beautiful Bill Act, signed in 2025, rewrote the rules for the ERC in three ways that matter to business owners:
- A six-year audit window. The statute of limitations for ERC assessments was doubled from three years to six. The clock generally runs from the latest of your return's filing date or the date you submitted the claim — meaning many 2021-quarter claims are now exposed into 2030 and beyond.
- Late claims disallowed. ERC claims for the third and fourth quarters of 2021 that were filed after January 31, 2024 are barred — even if they were valid and timely under the old rules.
- Steep promoter penalties. The "ERC mills" that pushed aggressive claims now face fines of up to $200,000 per violation for firms ($10,000 for individuals) for helping file ineligible claims.
Why this hits San Jose businesses now
The IRS spent 2024 and 2025 working through its enormous ERC backlog. Most ordinary refund claims were resolved by the end of 2025, which means a large share of the remaining cases are no longer sitting in a processing queue — they're in audit, appeal, or litigation. If your claim is still "pending," there's a real chance it's pending because it was flagged.
Restaurants, dental and medical practices, construction firms, and staffing companies — the industries an ERC mill targeted hardest — are exactly the businesses now drawing examination letters.
How an ERC audit starts
The most common opening move is IRS Letter 6612, a Notice of Audit requesting ERC-related documentation, typically with a 30-day deadline to respond. The IRS wants to see proof that you actually qualified — either a government order that suspended your operations, or a documented decline in gross receipts for the quarters you claimed.
The mistake we see most often: a business owner who let a promoter file the claim has no idea which theory the credit was based on, and no file to back it up. That gap is what turns a routine audit into a full disallowance plus penalties and interest.
What to do if your claim is open or under review
1. Pull your ERC file now — before a letter arrives.
Find the Forms 941-X that were filed, the quarters claimed, the dollar amounts, and whatever eligibility analysis the preparer used. If you don't have it, request it from the firm that filed for you.
2. Confirm which eligibility test you used.
Was it a full or partial suspension from a government order, or a gross-receipts decline? Each has specific documentation requirements. If neither clearly applies to a given quarter, that quarter is at risk.
3. Don't ignore Letter 6612.
A 30-day deadline is short. A complete, organized response is the single biggest factor in how an ERC audit ends.
4. If you suspect the claim was overstated, ask about your options.
The IRS has offered withdrawal and voluntary-disclosure paths in the past. Coming forward on your own terms is almost always better than waiting for the audit to find the problem.
Worried about your ERC claim? Free review.
If you claimed the Employee Retention Credit and you're not sure it would survive an audit — or you've already received Letter 6612 — send us your filing and we'll give you an honest read on where you stand and what to do next.
Request Free ERC Review →About the author: Jonathan C. Do is a tax attorney with 25+ years representing businesses and individuals in IRS audits, appeals, and U.S. Tax Court matters. He practices at Tax Resolution Center LLC in San Jose, CA.