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ERC
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The profile

The payroll giant's professional employer organization, ADP TotalSource, filed its clients' Employee Retention Credit claims on aggregate returns under its own tax IDs. On September 13, 2023, the day before the IRS froze new ERC claims, ADP's chief legal officer wrote to the IRS commissioner that the agent working its backlog had been told to stop.

Identity and role

ADP, Inc., of Roseland, New Jersey, provides payroll, HR and benefits services. Its subsidiary ADP TotalSource, Inc. is a professional employer organization (PEO): it co-employs clients' workers and files their employment taxes. ADP TotalSource says it was among the first PEO groups the IRS certified, in 2017, as Certified Professional Employer Organizations (CPEOs).

Pandemic-relief role

A CPEO "files aggregate employment tax returns for all its customers using the CPEO's employer identification number," ADP explained to the IRS, and ADP TotalSource files "through 17 different entities, with each aggregate quarterly filing representing the claims of hundreds of clients." When its clients claimed the Employee Retention Credit (ERC), the amended Forms 941-X that went to the IRS carried ADP's numbers, not theirs.

ADP put controls on the client side. Clients had to sign an "ERC Attestation" when submitting a claim and supply supporting documents before receiving any ERC money, and ADP recommended that they use a CPA to decide their own eligibility. Its documentation FAQ explains why: "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."

The September 13, 2023 letter

In a letter to Commissioner Daniel Werfel sent by overnight mail, Chief Legal Officer Dave Kwon asked the IRS to "promptly resume processing amended returns seeking ERC claims for ADP TotalSource clients, many of whom have been waiting for more than 2 years." He wrote that "the majority of Form 941-X filings that ADP TotalSource has filed over the past 3 years containing ERC claims remain outstanding," that a dedicated IRS agent assigned to the account "was directed internally to discontinue processing any filings that contain ERC claims," and that "no further work is currently being done on ADP TotalSource's returns." He called the slowdown "fundamentally unfair" to clients whose claims predated the IRS's warnings about aggressive ERC marketing.

The IRS announced its moratorium on processing new ERC claims the next day, September 14, 2023.

After the moratorium

ADP's support page for TotalSource clients says it is "in active communication with the IRS regarding the processing of our clients' pending ERC returns," working with the National Association of Professional Employer Organizations, and warns that offers to advance ERC money through ADP "are inaccurate. ADP is not authorized to provide loans as we are not a licensed lending institution." When the IRS pays, TotalSource says it returns the refund and "all IRS calculated interest" to the client. A February 2025 IRS Chief Counsel memo, PMTA 2025-01, concluded that an aggregate return filed without a Schedule R allocating the credit among clients is not a valid return for those clients; it does not name ADP.

No enforcement action against ADP over the ERC appears in the records we reviewed.

Where they are now (2025–2026)

ADP's TotalSource ERC support page was online in September 2026.

Sources

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