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The 2025 ERC Endgame

A single sentence in a 2025 reconciliation bill closed off part of the Employee Retention Credit by date rather than by eligibility — and the first courts to test it upheld the date.

Pandemic Darlings · Published

Key Meetings, Inc., a corporate event-planning company in San Francisco, filed IRS Form 941-X on August 28, 2024, seeking $175,000 in Employee Retention Credit refunds across the first three quarters of 2021: $63,000 for Q1, $56,000 for Q2, $56,000 for Q3. At the time, according to its complaint, which the court accepted as true for the motion, it was eligible for all three quarters and within the statute of limitations for claiming them.1 Then Congress changed the rule underneath the filing. Section 70605(d) of Public Law 119-21, the reconciliation bill enacted July 4, 2025, reads:

Notwithstanding section 6511 of the Internal Revenue Code of 1986, no credit under section 3134 of the Internal Revenue Code of 1986 shall be allowed, and no refund with respect to any such credit shall be made, after the date of the enactment of this Act, unless a claim for such credit or refund was filed by the taxpayer on or before January 31, 2024.2

Key Meetings' Q1 and Q2 claims ran under the original CARES Act credit and were untouched. Its Q3 claim was a Section 3134 claim, filed seven months past the new deadline, and it was barred outright. On June 26, 2026, Judge William H. Orrick of the Northern District of California dismissed that count without leave to amend.3 The $56,000 didn't fail an audit or lose an eligibility argument. It fell on the wrong side of a date Congress set on July 4, 2025, reaching back over what the order calls a "16-month retroactivity period."

Four earlier statutes built and rebuilt the credit's substance. The 2025 law closes claims out by date.

What the cutoff reaches

Section 3134, enacted by the American Rescue Plan Act in March 2021, is the part of the code covering only the third and fourth quarters of 2021; the wage credit for 2020 and the first two 2021 quarters ran under the original CARES Act section, as later amended. So Section 70605(d)'s bar (written as "no credit under section 3134...shall be allowed") functions narrowly in practice. It reaches only unpaid claims for Q3 and Q4 2021 (Q4 already limited to recovery-startup businesses by a 2021 statutory cutoff) that were filed after January 31, 2024, and it operates prospectively from the date of enactment. A claim for those quarters already allowed or refunded on or before July 4, 2025 is untouched.4 A dollar-identical claim filed a week before the deadline proceeds to ordinary review; filed a week after, it is void by statute, with no eligibility determination required at all.

The IRS gets six years to assess

The ordinary IRS assessment window is three years from filing, under 26 U.S.C. § 6501(a). ARPA had already lengthened that specifically for the ERC's Q3/Q4 2021 quarters, to five years, codified at 26 U.S.C. § 3134(l). Section 70605(e) stretched it again, to six:

Notwithstanding section 6501, the limitation on the time period for the assessment of any amount attributable to a credit claimed under this section shall not expire before the date that is 6 years after the latest of— (A) the date on which the original return which includes the calendar quarter with respect to which such credit is determined is filed, (B) the date on which such return is treated as filed under section 6501(b)(2), or (C) the date on which the claim for credit or refund with respect to such credit is made.5

Because the clock runs from whichever of those three dates is latest, a Q3 2021 claim filed at the last permitted moment, January 31, 2024, can still be assessed into 2030. A claim filed late by amended return resets further out than an on-time original filing would have.

Penalties aimed at the advisors

The third piece of Section 70605 targets whoever helped file the claim. It creates a new statutory category, "COVID-ERTC promoter," defined by gross-receipts concentration: a person qualifies if they charge a contingent fee and derive more than 20% of gross receipts from ERC-related aid, assistance, or advice; or derive more than 50% of gross receipts from it regardless of fee structure; or derive more than 20% of gross receipts from it and that amount exceeds $500,000. Certified professional employer organizations are excluded from the definition. A "COVID-ERTC document," under subsection (c), is "any return, affidavit, claim, or other document related to" a Section 3134 credit or advance payment, including documents on eligibility or on calculating the amount.6

One penalty attaches to that category, and subsection (a) builds it in three steps:

  • Under subsection (a)(1), a COVID-ERTC promoter that provides aid, assistance, or advice on a COVID-ERTC document and "fails to comply with due diligence requirements imposed by the Secretary" on eligibility for, or the amount of, a Section 3134 credit "shall pay a penalty of $1,000 for each such failure."7
  • The requirements are the Treasury Secretary's to write. Subsection (a)(2) says they "shall be similar to" the existing preparer due-diligence requirements under § 6695(g), which cover earned-income, child-tax-credit, and head-of-household claims, and subsection (a)(3) confines the penalty to a document that "constitutes, or relates to, a return or claim for refund."8
  • Under subsection (a)(4), the penalty is "treated as a penalty which is imposed under section 6695(g)" of the Code "and assessed under section 6201."9 The enacted section sets no percentage-of-income penalty and makes no reference to the aiding-and-abetting penalty at 26 U.S.C. § 6701.

The section reaches filers in one place. Subsection (f) amends the penalty for an erroneous claim for refund or credit at § 6676(a), striking "income tax" and inserting "income or employment tax," for claims made after the date of enactment.10

The provision reaches aid, assistance, and advice provided after the July 4, 2025 enactment date. By then the IRS had imposed its September 2023 moratorium on processing new claims, and the same law's January 31, 2024 cutoff closed the door on later Section 3134 claims.11 What the penalty structure is positioned to reach going forward is advisory work on claims still moving through audit, disallowance response, or Appeals, where a promoter's due-diligence file, rather than the taxpayer's underlying eligibility, becomes the point of exposure.

Two due-process challenges, both lost

Two plaintiffs tested Section 70605(d) directly, arguing the retroactive cutoff violated the Fifth Amendment's Due Process Clause. Both lost. The Court of Federal Claims ruled first, in Juggler Dave & Friends, LLC v. United States, decided March 25, 2026; the Northern District of California followed three months later in Key Meetings, adopting the Court of Federal Claims' reasoning directly and calling it persuasive.123

Both courts applied the deferential rational-basis test that governs retroactive tax legislation under United States v. Carlton (a legitimate legislative purpose, pursued by rational means) rather than the heightened scrutiny a "wholly new tax" would draw. The Court of Federal Claims held the cutoff didn't create a new tax, only new eligibility criteria on an existing credit.13 Both found the fraud-prevention purpose adequately supported by the legislative and administrative record: Judge Orrick's order cites the IRS's own September 2023 moratorium announcement describing "a flood of improper Employee Retention Credit claims," alongside a House Ways and Means Committee report tying the cutoff to limiting "waste, fraud, and abuse in the tax system."14

Key Meetings argued that the six-year assessment extension and the promoter penalties described above were more narrowly tailored tools Congress could have relied on instead of a blanket filing bar. Orrick's answer was that the Constitution requires a rational solution to the problem, not the most efficient one available, citing Armour v. City of Indianapolis.15 The court also rejected a reliance argument: Key Meetings could have claimed the Q3 2021 credit at any point between 2021 and the 2024 deadline and did not, which under Juggler Dave forfeits any reliance interest in the earlier filing window.16 And it rejected the claim that a sixteen-month retroactive window was constitutionally excessive on its length alone, noting that Carlton had upheld a fourteen-month retroactive estate-tax change and that the Ninth Circuit has upheld four years of retroactive underpayment penalties in other tax contexts.17

Neither ruling reached whether any specific claim was, on the merits, fraudulent or legitimate. The holding in both cases is narrower than that: Congress may draw an administrative line by date, even where the line cuts off claims that might otherwise have succeeded on the facts.

What's left to close out

As of the IRS's own public tracker for the week ending August 29, 2026, approximately 14,900 ERC claims remained somewhere in the processing pipeline — under review, pending payment or disallowance, under audit, awaiting review of a disallowance response, or before the Independent Office of Appeals.18 None of those processing categories, standing alone, indicates whether the underlying claim was filed before or after January 31, 2024. For Q3 and Q4 2021, that single date now decides whether a claim gets an eligibility review at all.

Notes

  1. Key Meetings, Inc. v. United States, No. 25-cv-06520-WHO (N.D. Cal.), Order Granting Motion to Dismiss Count Three (filed June 26, 2026), at 1–2, reciting First Amended Complaint ¶¶ 1–2, 6–7, 48, 93, 102, 112, `research/erc-ecosystem/source-documents/enforcement/recap/gov.uscourts.cand.453846.44.0.pdf`. Court order free via CourtListener (docket 3:25-cv-06520-WHO). ↩
  2. Pub. L. 119-21, § 70605(d), 139 Stat. 72, 287–88 (2025), Source document, PDF pp. 217–218; quoted verbatim in Key Meetings, Order at 3. ↩
  3. Key Meetings, Order at 1, 9 (dismissing Count Three "without leave to amend"). ↩1 ↩2
  4. Key Meetings, Order at 3 n.2 ("There is no dispute that the OBBBA did not impact the requests for refund for the first two quarters of 2021"); Pub. L. 119-21, § 70605(d) and (g)(2), 139 Stat. 287–88 ("Subsection (d) shall apply to credits and refunds allowed or made after the date of the enactment of this Act"), Source document, PDF pp. 217–218; IRS, "Frequently asked questions about the Employee Retention Credit," captured Sept. 19, 2026 ("Only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021"). ↩
  5. 26 U.S.C. § 3134(l), as amended by Pub. L. 119-21 § 70605(e), 139 Stat. 288, Source document, PDF p. 218 (the quotation is new § 3134(l)(1)); the pre-amendment version set the same structure at five years rather than six. ↩
  6. Pub. L. 119-21 § 70605(b)(1)–(2) (COVID-ERTC promoter; exception for certified professional employer organizations) and § 70605(c) (COVID-ERTC document), 139 Stat. 287, Source document, PDF p. 217. ↩
  7. Pub. L. 119-21 § 70605(a)(1), 139 Stat. 286, Source document, PDF p. 216. ↩
  8. Pub. L. 119-21 § 70605(a)(2), (3) and (5), 139 Stat. 286–87; cf. 26 U.S.C. § 6695(g) (existing EITC/CTC/AOTC/head-of-household due-diligence penalty). ↩
  9. Pub. L. 119-21 § 70605(a)(4), 139 Stat. 286, Source document, PDF p. 216. Section 70605 as enacted, 139 Stat. 286–88, contains no reference to 26 U.S.C. § 6701. ↩
  10. Pub. L. 119-21 § 70605(f) and (g)(4), 139 Stat. 288, Source document, PDF p. 218. ↩
  11. Pub. L. 119-21 § 70605(g)(1), 139 Stat. 288 ("shall apply to aid, assistance, and advice provided after the date of the enactment of this Act"), Source document, PDF p. 218; IRS IR-2023-169 (Sept. 14, 2023), Source document ("an immediate moratorium through at least the end of the year on processing new claims"). ↩
  12. Juggler Dave & Friends, LLC v. United States, 181 Fed. Cl. 52 (Fed. Cl. Mar. 25, 2026), quoted and discussed extensively in Key Meetings, Order at 4–9. ↩
  13. United States v. Carlton, 512 U.S. 26, 30–32, 35 (1994); Key Meetings, Order at 3–4, 6–7 (applying Carlton and Gadda v. State Bar of Cal., 511 F.3d 933, 938 (9th Cir. 2007)). ↩
  14. Key Meetings, Order at 6–7, citing H.R. Rep. No. 118-353, pt. 1, at 94 (2024) and IRS Press Release IR-2023-169 (Sept. 14, 2023). ↩
  15. Armour v. City of Indianapolis, 566 U.S. 673, 685 (2012), cited in Key Meetings, Order at 7. ↩
  16. Key Meetings, Order at 8, citing Juggler Dave, 181 Fed. Cl. at 60, and Honeywell, Inc. v. United States, 973 F.2d 638, 643 (8th Cir. 1992). ↩
  17. Key Meetings, Order at 8–9, citing Carlton, 512 U.S. at 32, and Licari v. Comm'r, 946 F.2d 690, 693–95 (9th Cir. 1991). ↩
  18. IRS, "Employee Retention Credit" program page, inventory update for the week ending August 29, 2026, captured Sept. 19, 2026 (under review 1,650; pending payment or disallowance 2,950; under audit 3,600; awaiting review of disallowance responses 5,300; Independent Office of Appeals 1,400; page updated monthly). ↩

Primary sources used in this article

  • Key Meetings, Inc. v. United States, No. 25-cv-06520-WHO (N.D. Cal.), Order Granting Motion to Dismiss Count Three (June 26, 2026) — `research/erc-ecosystem/source-documents/enforcement/recap/gov.uscourts.cand.453846.44.0.pdf`; free via CourtListener (docket 3:25-cv-06520-WHO)
  • Juggler Dave & Friends, LLC v. United States, 181 Fed. Cl. 52 (2026), as quoted and described in the Key Meetings order at 4–9
  • Pub. L. 119-21, § 70605 (subsections (a)–(h)), 139 Stat. 286–88 — Source document
  • 26 U.S.C. § 3134(l), as amended by § 70605(e) (text from the public law)
  • 26 U.S.C. § 6695(g), § 6201 — https://www.law.cornell.edu/uscode/text/26
  • IRS, Employee Retention Credit program page (inventory tracker, captured Sept. 19, 2026) and ERC frequently asked questions —
  • IRS Press Release IR-2023-169 (Sept. 14, 2023)
  • United States v. Carlton, 512 U.S. 26 (1994)
  • Armour v. City of Indianapolis, 566 U.S. 673 (2012)

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