IRS Publishes New Employee Retention Credit (ERC) Fact Sheet: What Employers Need to Know in 2026

The Internal Revenue Service (IRS) is continuing to prioritize Employee Retention Credit (ERC) fraud enforcement heading into 2026. It is targeting both successful and unsuccessful ERC claimants—including claimants excluded by the One Big, Beautiful Bill (OBBB) in some cases. Learn more from Virginia tax defense attorney Kevin E. Thorn, Managing Partner of Thorn Law Group:

OBBB Excludes Some Previously Eligible ERC Claims and Enforcement Remains a Concern

The IRS discussed its ongoing ERC-related enforcement efforts in a recent Fact Sheet. The Fact Sheet also highlights a major change to the ERC program that took effect when President Trump signed the OBBB into law on July 4, 2025.

Under the OBBB, ERC claims filed after January 31, 2024 for the third and fourth quarters of 2021 are no longer valid. While the IRS states in its Fact Sheet that it does not intend to recoup credits or refunds it has already approved, it also makes clear that “other IRS compliance activities may still result in an adjustment or bill.”

In other words, even if the IRS denies a business’s ERC claim under the OBBB (or for other reasons), the business could still face scrutiny if it claimed the ERC improperly.

With this in mind, all businesses that have claimed the ERC remain at risk of facing ERC-related scrutiny in 2026, unless they have faced scrutiny already. In light of this risk, business owners and executives who have concerns about their businesses’ ERC filings should take a proactive approach to coming into compliance as necessary. While some businesses may be able to withdraw their ERC claims or otherwise amend their returns, others may need to consider alternatives such as submitting a voluntary disclosure.

Understanding the Risks of Submitting an Invalid ERC Claim

For businesses that have submitted invalid ERC claims, facing scrutiny from the IRS can present substantial risks. In the event of an audit, the IRS’s discovery of an invalid ERC claim could lead to:

• Liability for back taxes (for improper credits) or repayment of tax refunds
• Civil penalties for underpayment of business income tax liability
• Interest on back taxes and penalties

However, ERC fraud allegations can also lead to criminal prosecution in some circumstances. In criminal cases, businesses (and their owners and executives) can face charges for tax evasion, tax fraud and various other federal crimes. These charges carry substantial fines and prison time. We have seen the IRS work with the U.S. Department of Justice (DOJ) to pursue criminal charges in multiple ERC enforcement cases, and we expect the IRS and DOJ to continue pursuing criminal charges as warranted in 2026.

Schedule a Call with Virginia Tax Defense Attorney Kevin E. Thorn

Virginia tax defense attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, helps businesses proactively resolve high-stakes tax controversies with the IRS. He also represents businesses (and their owners and executives) in federal tax audits and investigations. If you would like to schedule a call with Mr. Thorn, please call 703-752-3752 or contact us confidentially online today.