OBBBA Takes a Wrecking Ball to Some ERC Claims: Lawsuits are Likely to Follow

By: David E. Colmenero and Joel N. Crouch

As it turns out, the One Big Beautiful Bill Act (OBBBA) may not be so beautiful after all, at least with respect to some pending ERC claims. Included in the OBBBA is a statutory bar for certain ERC claims filed after January 31, 2024. What is perhaps most problematic about this newly enacted statutory bar is that it has retroactive effect even for ERC claims that are otherwise timely and legitimately filed. As discussed below, affected taxpayers may want to consider options for challenging the IRS. 

The ERC was enacted as part of the CARES Act in March 2020 to help employers retain employees during COVID-19 and initially applied to employment tax paid for the 2020 quarters and the first two quarters of 2021. The American Rescue Plan Act (ARPA) extended this credit to include the last two quarters of 2021. Generally, the deadline for requesting a credit or refund is tied to the statute of limitations under IRC §6511, which is three years from the time the return was filed or two years from the time the tax was paid. IRC §6511(a). For the 3rd quarter of 2021, for example, the statute of limitations could remain open until as late as October 31, 2024 under the general three-year statute of limitations.

This is where the OBBBA comes in. It was signed into law on July 4, 2025. Section 70605 of the OBBBA states that, notwithstanding section 6511 of the IRC, “no credit under section 3134 of the [IRC] shall be allowed, and no refund with respect to any such credit shall me made, after the date of the enactment of [the OBBBA], unless a claim for such credit or refund was filed by the taxpayer on or before January 31, 2024.” See OBBBA, H.R. 1, 119^th Cong. §70605 (2025). Essentially this prohibition applies to many claims that may otherwise be allowed if the claim was not filed on or before January 31, 2024. Under the above example, the taxpayer that otherwise had until October 31, 2024 to claim an ERC for the 3rd quarter of 2021 would now be barred if it did file its ERC claim by that date. This bar would apply even if the claim was pending at the time the OBBBA was enacted provided the refund had not yet been issued.

The necessarily begs the question, can Congress retroactively pull the rug out from taxpayers in this manner? Existing case law suggests that there may be limitations on Congress’s ability to retroactively change tax laws but also recognizes that Congress has broad authority to amend tax laws. In one case that is likely to be cited by the government in any potential challenge to OBBBA’s retroactive statutory bar to the ERC claims, the U.S. Supreme Court upheld a limited retroactive statutory amendment by Congress limiting a deduction added the year before where the subsequent amendment closed an unintended loophole thereby giving effect to original Congressional intent. See United States v. Carlton, 512 U.S. 26 (1994). One may legitimately question whether Congress has similar authority to enact retroactive legislation where it is not seeking to close a loophole or give effect to what it originally intended.

No doubt there are many taxpayers that either timely filed ERC refund claims under the otherwise applicable statute of limitations or were planning to do so but are now barred as a result of the OBBBA’s retroactive statutory bar. Those taxpayers may want to consider options for challenging the IRS denial of the ERC refund and are welcome to contact either of the authors of this article to discuss that possibility at 214-744-3700.