The ERC Mill Economy

Congress created the credit to reward employers that kept workers on payroll during COVID disruptions. It was technical, refundable, and potentially valuable. Then promoters discovered the combination that makes a tax program dangerous: a large refund, a complicated eligibility test, and a filing process that could be sold to business owners as found money.

By September 2023, the IRS had seen enough. It announced an immediate moratorium on processing new ERC claims, citing aggressive marketing, questionable claims, and a flood of filings that threatened both the Treasury and legitimate taxpayers.¹ On the same day, the agency warned employers about "red flags" in ERC promotion, including firms that pushed businesses to claim the credit without a close review of eligibility.²

This was a market. Some charged contingency fees based on the refund. Some told owners that supply-chain disruption, revenue decline, or government-order tests were easier to satisfy than they were. Business owners who did not understand the rules were told a specialist could unlock money the accountant had missed.

TIGTA later faulted IRS management of erroneous ERC claims and documented the program's scale and control problems.³ The IRS tried to unwind the mess with withdrawal procedures, voluntary disclosure, warning letters, and slower review. That cleanup carried its own risk of collateral damage: TIGTA warned that processing delays "may impact legitimate businesses that are eligible for the ERC" while the agency sorted good filings from bad.³

The Credit Reset indictment shows the criminal edge of the market. Federal prosecutors alleged that defendants used the business to submit more than 8,000 employment-tax returns, claim more than $600 million in credits, and obtain about $45 million before the scheme was charged.⁴ Those are allegations unless and until proven or admitted.

Unlike PPP or EIDL money, ERC money did not always start with an emergency portal. It moved through the tax system. The gate was the IRS's ability to process amended payroll tax returns and catch claims that were wrong, exaggerated, or fabricated.

Many bad claims were manufactured by translating pandemic hardship into tax language that did not qualify.

The government wrote a credit for employers and created a product for promoters.

Notes

1. IRS, "To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims," IR-2023-169, September 14, 2023, Source document. ↩
2. IRS, IR-2023-169, September 14, 2023, Source document (red-flags warning content). ↩
3. TIGTA, Management Took Actions to Address Erroneous Employee Retention Credit Claims; However, Some Questionable Claims Still Need to Be Addressed, Report 2024-400-068, Source document. ↩₁ ↩₂
4. United States v. Williams et al., indictment and superseding indictment, Source document and `cases/erc-us-v-williams-credit-reset/documents/CRIM_NYED_2-25-cr-00020_US-v-Williams-ERC-Credit-Reset_doc85_SUPERSEDING-INDICTMENT_2025-11-12.pdf`; case summary at `cases/erc-us-v-williams-credit-reset/SUMMARY.md`. ↩