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The IRS’s “billions” warning came from a June 20, 2024 enforcement announcement—not a finding that every Employee Retention Credit claim was improper. The agency said it would deny tens of thousands of claims it placed in its highest-risk group, examine other claims further, and begin processing claims it considered low risk. As of the week ending August 29, 2026, the IRS reported about 14,900 claims still in various stages of processing.
What the IRS announced about improper ERC claims
On June 20, 2024, IRS Commissioner Danny Werfel said the agency would “use this information to deny billions of dollars in clearly improper claims” while beginning additional work on claims without red flags. The statement followed months of digitizing and analyzing more than 1 million Employee Retention Credit claims representing more than $86 billion, according to the IRS. The claims had been filed amid aggressive marketing.
The IRS divided that reviewed group into three estimated risk categories. These percentages described the agency’s assessment at the time; they were not final audit findings or proof that every claim in a category was invalid.
| IRS risk category in the 2024 review | Estimated share of reviewed claims | What the IRS said it would do |
|---|---|---|
| Highest risk | 10%–20% | Deny tens of thousands of claims showing clear signs of error |
| Unacceptable risk requiring more analysis | 60%–70% | Conduct additional review before deciding how to proceed |
| Low risk | 10%–20% | Begin processing claims without red flags |
The figures are the IRS’s estimates for the claims it reviewed in 2024, not a current breakdown of every ERC claim or a count of claims ultimately denied. The IRS described the credit as one of the most complex it had administered and asked taxpayers for patience as it worked through the process.
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What the Employee Retention Credit covered
The Employee Retention Credit (ERC), also called the Employee Retention Tax Credit or ERTC, is a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. It is not a payment available to individuals. The IRS says eligible employers must have paid qualified wages after March 12, 2020, and before January 1, 2022.
Eligibility depends on the employer, the tax period, the basis for the claim, and the wages counted. Broad eligibility routes included:
- A qualifying suspension of operations due to a government order during 2020 or the first three quarters of 2021.
- The required decline in gross receipts during an eligible period.
- Recovery-startup business status for the third or fourth quarter of 2021.
There are wage and other limitations. For example, employers cannot use wages counted as payroll costs for forgiveness of a Paycheck Protection Program loan to calculate the ERC. The IRS’s ERC overview explains eligibility by period and the applicable limitations; a business’s pandemic-related hardship, by itself, does not establish eligibility.
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Warning signs that an ERC claim may be incorrect
The IRS has identified common problems that merit a careful review. A warning sign is a reason to check the claim’s support—not, by itself, a determination that a particular employer was ineligible.
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- An irrelevant government order: The order cited may not have applied to the business, affected its operations, or required a suspension.
- Incorrect employee or wage figures: The claim may count too many employees or calculate qualified wages incorrectly.
- Supply-chain disruption treated as sufficient on its own: The IRS warns that supply problems alone do not establish eligibility under the government-order test.
- A full quarter claimed when only part was affected: The claimed period may exceed the time a qualifying order suspended operations.
- Credit claimed before the business existed or paid wages: The business must have existed and paid wages in the period claimed.
- A promoter’s assurance that there is “nothing to lose”: An incorrectly claimed and paid credit may have to be repaid and can lead to penalties, interest, an audit, or other costs.
The IRS’s ERC warning-sign guidance and FAQs describe these issues in more detail. Employers should assess the actual eligibility test and records for each claimed period rather than rely on a promoter’s conclusion or a generalized checklist.
Current ERC claim status and the 2021 filing cutoff
How many claims remain
The IRS overview reported about 14,900 remaining ERC claims as of the week ending August 29, 2026. The agency said the count is updated monthly. The remaining claims span multiple procedural stages: under review; pending payment or disallowance; under audit; awaiting review of responses to disallowance; and with the Independent Office of Appeals. The total is an as-of snapshot, not a measure of how many claims will be paid or denied.
A claim’s risk assessment and its procedural status are different things. A claim may still be under review, already disallowed, under audit, or in Appeals; the 2024 risk percentages do not tell an individual employer which stage applies to its claim.
Late claims for the third and fourth quarters of 2021
An October 2025 IRS fact sheet describes a statutory limitation enacted in Public Law 119-21: the IRS cannot allow or refund a third- or fourth-quarter 2021 ERC claim filed after January 31, 2024, after July 4, 2025—even if the employer otherwise met the eligibility requirements. The IRS says a claim counts as filed by January 31, 2024, if it was postmarked and properly mailed, or submitted to the appropriate IRS office, by that date.
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What to do if the IRS denied your ERC claim
Read Letter 105-C and identify the reason
The IRS says it sends Letter 105-C to notify a taxpayer that an ERC claim has been disallowed. Start with the letter itself: identify the claim and tax period at issue, the stated reason for disallowance, any response instructions, and the dates that apply to your case. The IRS’s Letter 105-C guidance explains how to respond. Individual rights and deadlines depend on the notice and the facts.
Prepare a response that addresses the denial
If you disagree, the IRS advises responding with documentation that addresses the reason for disallowance, eligibility, the claim’s timeliness where relevant, and the amount claimed. The records needed depend on the eligibility basis. For example, a government-order suspension claim should be supported by the relevant order and evidence of how it affected operations; a gross-receipts claim should be supported by the records used to establish the decline; and a recovery-startup claim should be supported by records relevant to that status. Keep the support tied to the specific quarter and amounts in dispute.
Track Appeals and court deadlines separately
The IRS describes appeal rights through its Independent Office of Appeals and the option to file suit. Generally, a suit must be filed within two years of the disallowance letter. Requesting an Appeals review does not extend that period. Because missing a deadline can affect legal rights, follow the notice and the IRS’s current guidance promptly, and consider consulting a qualified tax professional or tax attorney about the specific claim.
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Can you still claim ERC for 2021?
The answer depends on the quarter, the claim’s filing date, and whether it has already been paid or credited. The IRS’s October 2025 fact sheet states that a third- or fourth-quarter 2021 claim filed after January 31, 2024, cannot be allowed or refunded after July 4, 2025, under the statutory limitation it describes. For other periods or a claim already submitted, the applicable eligibility rules, processing status, and any IRS notice matter. Do not assume that a claim still appearing in the IRS’s processing count is an invitation to file a new claim.
The IRS FAQ materials are general information and may be updated; the agency cautions that they are not published in the Internal Revenue Bulletin and do not control if they conflict with the law. For a specific claim, rely on the applicable statute and the IRS notice, and seek qualified professional advice when needed.
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