This advisory draws upon the guidance provided by the Internal Revenue Service (IRS) in its Frequently Asked Questions (FAQs) released as FS-2025-07 on October 22, 2025, announced via IR-2025-106. These FAQs specifically address the stringent compliance and limitation provisions affecting the Employee Retention Credit (ERC) as enacted by the One, Big, Beautiful Bill Act (OBBBA). While this guidance is intended to provide general information to tax professionals as expeditiously as possible, it is important to remember that these FAQs have not been published in the Internal Revenue Bulletin and will not be relied upon by the IRS to resolve a specific case; the underlying tax law controls the taxpayer’s liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs may be shielded from penalties, such as negligence or other accuracy-related penalties, to the extent such reliance results in an underpayment of tax, provided the reasonable cause standard for relief is met.

The Regulatory Framework Imposed by the OBBBA

The OBBBA introduced new enforcement mechanisms related to the ERC. One of the most consequential of these provisions is section 70605(d). This section directly limits the timeframe within which the IRS can process and allow certain credits and refunds. Beyond claims processing, the OBBBA also strengthens compliance enforcement by establishing penalties against certain promoters of the ERC who fail to meet due diligence requirements when assisting with credit claims.

Limitation on Allowance and Refund under Section 70605(d)

Section 70605(d) of the OBBBA dictates that the IRS is prevented from allowing or refunding ERCs after July 4, 2025, for claims pertaining to the third and fourth quarters of 2021 if those claims were filed subsequent to January 31, 2024. This limitation applies even if the employer otherwise satisfied all eligibility requirements for the credit.

ERC Claims Impacted by the Filing Deadline

The critical limitation under section 70605(d) targets specific claims based on the filing date and the applicable quarter.

Impacted Claims: Section 70605(d) applies exclusively to new ERC claims for the third and fourth quarters of 2021 that were filed after January 31, 2024.
Consequence of Missing the Deadline: Taxpayers who missed the January 31, 2024, deadline are explicitly advised that no new ERCs claimed on a return for the third or fourth quarters of 2021 will be allowed or refunded after July 4, 2025, due to Section 70605(d).

Defining the "Filed" Date

For the purposes of applying section 70605(d), the IRS has clarified the definition of when a return is considered "filed". An original or amended return claiming a credit or refund based on an ERC is treated as filed on or before January 31, 2024, if the claim was postmarked and properly mailed or submitted to the appropriate IRS office by that specific date.

Post-Filing Status and Compliance Activities

The FAQs address scenarios where claims were filed near the deadline and their status relative to the statute.

Claims Already Processed and Refunded: If an ERC claim for Q3 or Q4 of 2021 was filed after January 31, 2024, but was refunded or credited before July 4, 2025, section 70605(d) generally does not apply to that specific claim. Consequently, the taxpayer generally would not receive a bill based solely on the limitations of section 70605(d). However, practitioners must advise clients that other ongoing IRS compliance activities may still lead to an adjustment or a resulting bill.
Processing Non-ERC Items: Should an ERC claim be disallowed under section 70605(d) but represents only one of several items claimed on the return, the IRS maintains the capacity to continue processing the other items on that return as appropriate.
Amended Returns Withdrawing Claims: Section 70605(d) does not apply to amended returns filed after January 31, 2024, if the purpose of the amended return is to withdraw a previously claimed ERC for the third or fourth quarter of 2021. Therefore, the IRS will proceed to process such an amended return.

Appeal Rights and Disallowance Procedures

If an ERC claim is disallowed pursuant to section 70605(d), the taxpayer will be issued Letter 105-C, Claim Disallowed.

Appeal rights are available for taxpayers. A taxpayer may appeal the disallowance to the IRS Independent Office of Appeals if they believe their refund claim asserting ERC eligibility was timely filed on or before January 31, 2024, and the IRS decision to disallow the claim under section 70605(d) of the OBBBA was improper. Additional resources for responding to Letter 105-C are available at IRS.gov/erc105c.

Prepared with assistance from NotebookLM.