H.R. 1, the major tax reconciliation bill enacted into law this summer, introduced new enforcement provisions affecting the employee retention tax credit (ERTC). Earlier this month, the Internal Revenue Service (IRS) issued guidance to address the limitation on credits and refunds for ERTC claimed for the third and fourth quarters of 2021 filed after Jan. 31, 2024. One provision prevents the IRS from allowing or refunding ERTCs after July 4, 2025, for the third and fourth quarters of 2021 if those claims were filed after Jan. 31, 2024, even if the taxpayer otherwise met eligibility requirements.

However, if taxpayers filed after Jan. 31, 2024, but received an ERTC credit or refund before July 4, 2025, the rules do not apply to the claim. If an ERTC claimed on a return is disallowed under the rules, taxpayers will receive Letter 105-C, Claim Disallowed and can appeal to the IRS Independent Office of Appeals. The taxpayer would need to believe the refund claim reporting ERC eligibility was timely filed on or before Jan. 31, 2024, and the IRS improperly disallowed it under section 70605(d) of H.R.1.