A Letter to the Commissioner: ADP and the Aggregate 941-X Pipeline

ADP TotalSource is a Certified Professional Employer Organization, one of the first cohort the IRS certified back in 2017.¹ As a CPEO, it files its clients' aggregate employment tax returns under its own Employer Identification Number rather than each client's — Kwon's letter puts the scale at 17 separate filing entities, with "each aggregate quarterly filing representing the claims of hundreds of clients."¹ When a small business enrolled with ADP TotalSource claimed the ERC, the Form 941 or 941-X that went to the IRS did not carry that business's own EIN. It carried ADP's.

That single fact separates four questions that get collapsed together in the press coverage: who filed the return, who owns the credit, who is holding the refund, and who the IRS can come after if the number is wrong.

Whose facts, whose form

The credit itself is computed from a specific business's own numbers — a quarter's drop in gross receipts against the same quarter in 2019, or a government order that partially shut its doors. ADP's ERTC Supporting Documentation FAQ, sent to clients ahead of any refund release, asks each one for that: gross receipts by quarter for 2019 through 2021, sales or revenue records for the claimed quarter and its comparison quarter, copies of the applicable government orders, a description of the business and how COVID-19 affected it.² ADP does not supply those facts. The client does. ADP also tells clients it "recommend[s]" they consult their own CPA or tax professional if they have questions, and it requires each one to complete an ERTC Attestation and supporting-documentation worksheet before it issues any refund.² The economic substance of the claim, whether the business actually qualified, rests on facts only the client has and on the client's own adviser.

The filing, though, is ADP's. A nonprecedential Chief Counsel memo concluded that an aggregate 941-X without Schedule R is not a valid client refund claim; “The 2,700 Claims Without a Schedule R” lays out the doctrine and inventory count.³

Who's holding the check

ADP's clients don't get an IRS check. The IRS credits ADP's own tax account first. Active TotalSource clients see the money show up as a line item on a payroll invoice, labeled "CARES Wage Retention Credit"; clients who have since left ADP get a paper check mailed by UPS.⁴ Either way, ADP is the one who has the refund before the business that earned it does, and ADP's FAQ makes clear that release is conditioned on the attestation and documentation being in hand first.²

ADP's client support page states that ADP "does not provide an advance to clients on their tax credit funds" and "is not authorized to provide loans as we are not a licensed lending institution."⁴ A side industry grew up around the gap that disclaimer describes: firms that bought or lent against ERC refunds still sitting with a payroll processor, marketing directly to businesses whose money was filed through providers like ADP.⁵

Who the IRS can actually come after

Filing role and ownership are one split. Liability is a separate one, and here ADP's own document supplies the reasoning: "the IRS issued guidance indicating that a PEO such as ADP TotalSource may be held directly liable for invalid ERTC credits claimed by a PEO client in the event that the IRS audits the claims and the PEO is unable to provide sufficient supporting documentation."² ADP collects attestations and backup paperwork before it releases a dollar, which gives it something to show an examiner if the IRS comes after ADP itself.

TriNet, a competing CPEO, disclosed the same exposure in blunter terms in its 2023 annual report: "The IRS has taken positions that we and other PEOs, rather than clients, are responsible for client errors and repaying rejected tax credit claims under these and similar programs. While our clients are contractually responsible for repaying us for any rejected tax credits under these programs, a contract does not guarantee our ability to recover rejected tax credits and any failure to recover rejected tax credits from our clients would increase our operating expenses."⁶ Both documents describe the same architecture: a private contract assigns the risk of a bad claim back to the client, but does not bind the government, which can look first to the entity whose EIN is on the return.

What the batching did to the wait

Filing in aggregate also pooled the businesses together procedurally. According to Vensure, another large PEO, a PEO's ERC claims moved as a block under the IRS's process: an audit could stall payments "for hundreds or even thousands of companies at once," including businesses with nothing individually wrong with their claims. Vensure said in June 2026 that it had pushed the IRS to adopt a "bifurcated" approach, paying the approved portion of a claim while the disputed piece continued through appeals instead of holding the whole filing hostage to one dispute. It said the change stood to unlock refunds for more than 500 PEOs and roughly 230,000 businesses nationwide, some of which had been waiting since early 2021.⁷

ADP's clients were part of that same backlog. Its support page for TotalSource clients describes a March 24, 2026 meeting at which the IRS told the trade group NAPEO that roughly 185 PEOs' claims, representing about 950 quarters, remained unprocessed out of some 41,000 ERC claims still outstanding IRS-wide, and that it had added 20 to 30 examiners to the effort.⁴ Nearly three years after Kwon's letter to Commissioner Werfel, some ADP TotalSource clients were still waiting.

For a narrow slice of claims, the wait ended a different way. The tax law signed July 4, 2025 retroactively disallowed ERC claims for the third and fourth quarters of 2021 if they were filed after January 31, 2024 and not yet paid, while extending the IRS's assessment window on third-quarter 2021 claims (and fourth-quarter claims by recovery startup businesses) from five years to six.⁸ A business whose ADP-filed claim cleared before that cutoff kept its refund. One that hadn't didn't. And every paid claim for those quarters now carries assessment exposure for twice the ordinary three years; per ADP's own reasoning above, that exposure lands on the CPEO's own files as much as the client's.

Notes

1. ADP, Inc., letter from Dave Kwon, Chief Legal Officer, to IRS Commissioner Daniel I. Werfel, "RE: Outstanding ADP TotalSource Employee Retention Credit (ERC) Filings", Sept. 13, 2023, original. ↩₁ ↩₂ ↩₃
2. ADP, Inc., "ERTC Supporting Documentation FAQ", 2024, original. ↩₁ ↩₂ ↩₃ ↩₄
3. IRS Office of Chief Counsel, Program Manager Technical Advice, POSTU-122321-23 ("PMTA 2025-01"), from Paul T. Butler, Associate Chief Counsel (Procedure & Administration), to John McInelly, Executive Lead, ERC, signed Feb. 13, 2025, original. The memo applies the substantial-compliance test of Beard v. Commissioner, 82 T.C. 766 (1984), aff'd per curiam, 793 F.2d 139 (6th Cir. 1986), and cites Notice 2021-20, 2021-11 I.R.B. 922, Q&A #62, as the source of the Schedule R requirement for aggregate filers claiming the ERC. The memo states on its face that "this advice may not be used or cited as precedent." ↩
4. ADP, Inc., "ERC Updates for ADP TotalSource® Clients", original, accessed July 11, 2026. ↩₁ ↩₂ ↩₃
5. Icarus Fund LLC, homepage ("ERC Buyout"; "We purchase credits at competitive rates"), original; marketing pages "Filed Your ERC Through ADP? Where's the Refund?" and "The Ultimate Guide to Unlocking ERC Cash from ADP PEO Filings," icarus-fund.com. ↩
6. TriNet Group, Inc., Form 10-K for fiscal year 2023, filed with the SEC Feb. 15, 2024, accession no. 0000937098-24-000025, original. TriNet subsidiaries are also IRS-certified CPEOs; the quoted risk-factor and MD&A language addresses "these and similar programs," including the ERTC discussed elsewhere in the same filing. ↩
7. Vensure Employer Solutions, "Vensure Advocacy Leads to IRS Change Unlocking Long-Delayed ERC Refunds for More than 500 PEOs and 230,000 Businesses Nationwide", PR Newswire, June 24, 2026, original. ↩
8. One Big Beautiful Bill Act, Pub. L. No. 119-21 (2025), provisions disallowing ERC claims for Q3–Q4 2021 filed after Jan. 31, 2024 and not paid before enactment, and amending 26 U.S.C. § 3134(l) to extend the assessment period for those credits from five years to six (see the amendment note at law.cornell.edu/uscode/text/26/3134); summarized in Jackson Walker, "Employee Retention Credit (ERC) Changes under the One Big Beautiful Bill Act: Some Disallowances, Six-Year Statute of Limitations and Expanded Penalties", original, and Forbes, Kelly Phillips Erb, "IRS Issues Guidance On How Controversial ERC Refunds Will Be Treated Under New Tax Law", Oct. 22, 2025, original. ↩

Primary sources used in this article

• ADP, Inc., letter from Dave Kwon, Chief Legal Officer, to IRS Commissioner Daniel I. Werfel, Sept. 13, 2023
• ADP, Inc., "ERTC Supporting Documentation FAQ," 2024
• ADP, Inc., "ERC Updates for ADP TotalSource® Clients," support page (accessed July 11, 2026)
• IRS Office of Chief Counsel, Program Manager Technical Advice POSTU-122321-23 ("PMTA 2025-01"), Feb. 13, 2025
• TriNet Group, Inc., Form 10-K for fiscal year 2023 (SEC EDGAR, filed Feb. 15, 2024)
• Vensure Employer Services / PR Newswire release, June 24, 2026
• One Big Beautiful Bill Act ERC provisions, as summarized by Jackson Walker and Forbes