The OBBBA Extends Government Authority on the ERTC

Yes.

Not all ERTC claims have been distributed yet. Not only that but the IRS now has a lot more tools at its disposal.

The One Big Beautiful Bill Act (OBBBA) gave the IRS more time, broader authority, and targeted enforcement tools to address a specific slice of ERTC activity: claims filed for Q3 and Q4 of 2021.

If your clients filed ERTC claims for those quarters—especially close to the January 31, 2024 deadline—or if they used a third-party promoter who charged contingency-based fees, these changes may directly affect them.

Here are four critical developments under the OBBBA.

1. Six-Year Audit Window for Q3 and Q4 2021 Claims

The IRS now has up to six years to audit and assess ERTC claims for Q3 and Q4 2021.

This timeline starts from the latest of:

• The original return due date,

• The actual filing date, or

• The date the ERTC claim was submitted.

This extension is not retroactive across all quarters—only Q3 and Q4 of 2021 are affected. But for claims filed at the last possible moment—such as on January 31, 2024—the IRS could assess through early 2030.

That means claims thought to be “safe” may still be well within the IRS’s window for scrutiny.

While the IRS should continue to make sure bad actors don't receive the ERTC, everyday businesses have been put through the ringer and aren't receiving credits that the legitamtely deserve. They're also spending significant dollars on audits and fighting the government to release their claims.

2. Missed the Jan. 31, 2024 Deadline? Those Claims Are Out

For Q3 and Q4 2021, any ERTC claims filed after January 31, 2024, are no longer eligible for refund. The law mandates the automatic denial of these late claims.

If a refund was issued before the law’s enactment (July 4, 2025), it’s unlikely to be reversed. But anything still pending—and filed after the January deadline—is now effectively void.

This creates a clear, bright-line rule; however, it may catch clients off guard if they assumed "better late than never."

3. Penalties for Excessive Refund Claims Now Include Payroll Taxes

Effective July 5, 2025, the IRS’s 20% erroneous refund penalty (under IRC § 6676) now applies to employment tax claims, although it doesn’t apply retroactively to prior ERTC filings.

This penalty applies when a claim for a refund or credit is made for an excessive amount, and it cannot be shown that the excessive amount was due to reasonable cause.

Previously the penalty only applied to claims for refund or credit related to income tax, so the penalty did not apply to taxpayers making improper ERTC claims.

Clients filing amended payroll returns going forward need to approach those claims with greater precision and supporting documentation.

4. Formal Penalties Introduced for ERTC Promoters

The OBBBA defines and targets a new category: COVID-ERTC Promoters—typically firms or individuals that:

• Provided advice or assistance with ERTC claims,

• Charged a fee based on the refund size, and

• Relied on ERTC as a material portion of gross receipts.

Penalties apply if the promoter failed to meet due diligence standards, with fines of $1,000 per failure, capped annually at $25,000.

This section applies only to conduct after July 5, 2025, so I don't know how relevant this actually is, but it may influence how clients evaluate promoter-prepared claims in current M&A due diligence or IRS correspondence scenarios.

TL;DR: Key Takeaways

⏩ Six-year statute of limitations now applies to Q3 and Q4 2021 ERTC claims.

⏩ Late ERTC claims (filed after Jan. 31, 2024) for those quarters will be denied.

⏩ Erroneous refund penalties now apply to employment tax credits, starting July 5, 2025.

⏩ New promoter penalties apply to post-2025 ERTC-related assistance when due diligence is lacking.

If your clients have unresolved ERTC issues, this new regulatory backdrop adds complexity that you need to be aware of.

➥ Contact Attorney Stephen A. Weisberg for a free Tax Debt Analysis.

Contact Me Here: https://www.weisberg.tax/contact-1

Email: sweisberg@wtaxattorney.com

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