This analysis examines the United States District Court for the District of Utah’s Memorandum Decision and Order in Greenway Equipment Sales, Inc. v. ERC Specialists, LLC, et al. (Case No. 2:24-CV-773-DAK-DBP), focusing on the court’s assessment of Article III standing in a lawsuit stemming from the utilization of Employee Retention Tax Credit (ERTC) consulting services. This case provides insight for tax professionals regarding the pleading requirements for damages claims against third-party promoters, particularly when the underlying tax credit results in a net positive financial outcome for the taxpayer.

Overview of the Employee Retention Tax Credit Framework

The litigation originates from the Employee Retention Tax Credit (ERTC), which was instituted by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) enacted in March 2020 (15 U.S.C. Ch. 116). The ERTC was designed as a refundable tax credit intended to encourage businesses impacted by the COVID-19 pandemic to retain employees on their payroll. The credit was subsequently modified and extended by later legislation, including The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act (26 U.S.C. § 3134; Pub. L. 117-2). Businesses were permitted for a time to claim the ERTC retroactively through the Internal Revenue Service (“IRS”), though this ability has since ceased.

Factual Summary of the Dispute

The Plaintiff, Greenway Equipment Sales, Inc. (“Greenway”), a wholesaler of John Deere equipment, was approached by Defendant Tax Rebate Specialists (“TRS”) regarding an ERTC application. TRS referred Greenway to ERC Specialists, LLC (“ERCS”) for assistance in qualifying for and maximizing the credit. Greenway alleges that TRS had a financial incentive through referral payments to maximize the credit value, potentially compromising caution regarding actual qualification.

Greenway entered into a Services Agreement with ERCS in September 2022 to file the necessary amended employment tax documents (Form 941-X) with the IRS. Greenway agreed to pay ERCS a fee equivalent to 10% of the expected tax credit. Greenway paid ERCS $72,965.70 based on the estimated credit amount.

Despite Greenway’s responses to the ERCS intake survey indicating no decline in gross revenue and no full suspension of business due to a government order during the relevant quarters, ERCS qualified Greenway for the credit for Quarters 2–4 of 2020 and Quarters 1–3 of 2021. The ERCS filings were approved by the IRS, and Greenway subsequently received $729,657 in ERTC funds.

Crucially, the Services Agreement between Greenway and ERCS included clauses addressing subsequent disqualification:

“[i]n the event the Internal Revenue Service disqualifies all, or a portion of any credits after they are received by client, ERC Specialists shall not be required to return the fee charged for services provided”.
Greenway also acknowledged that it had not relied upon any express or implied representation or warranty made by ERCS, which were expressly disclaimed, except as specifically provided in the agreement.

The Taxpayer’s Request for Relief and Subsequent Action

Following the receipt of the ERTC, Greenway met with a third-party consultant who determined that Greenway did not qualify for the credit. Based on this third-party assessment, Greenway applied for the IRS’s Voluntary Disclosure Program (“VDP”). Greenway was accepted into the VDP on December 3, 2024, and complied with the requirements.

As a participant in the VDP, Greenway agreed to voluntarily repay 80% of the ERTC received while being permitted to keep 20% of the credit obtained. In exchange for participation, the IRS conceded that it would not audit Greenway for its employment tax filings.

After repaying 80% of the credit, Greenway retained $145,931. After subtracting the $72,965.70 fee paid to ERCS, Greenway “netted $72,965”.

Greenway then filed a civil action against ERCS, TRS, and related individuals, seeking damages under the federal RICO statute and various Utah statutes for alleged misrepresentations related to the ERTC application process.

Legal Framework: Article III Standing

The Defendants moved to dismiss the Complaint for lack of Article III standing, raising a jurisdictional issue under Federal Rule of Civil Procedure 12(b)(1). For a federal court to exercise jurisdiction, the party bringing the suit must establish standing (The Wilderness Soc. v. Kane Cnty, 632 F.3d 1162, 1168 (10th Cir. 2011)).

To establish standing, a plaintiff must demonstrate three elements (TransUnion LLC v. Ramirez, 594 U.S. 413, 423 (2021)):

Injury in Fact: The plaintiff suffered an injury that is concrete, particularized, and actual or imminent. Traditional harms, such as monetary harms, readily qualify as concrete injuries.
Causation: The injury was likely caused by the defendant.
Redressability: The injury would likely be redressed by judicial relief.

The court emphasized the critical distinction that Article III standing requires a concrete injury even in the context of a statutory violation (Spokeo, Inc. v. Robins, 578 U.S. 330, 341 (2016)). An “injury in law is not an injury in fact” (TransUnion, 594 U.S. at 426). A plaintiff seeking statutory damages without remedying harm to themselves does not have Article III standing.

Application of the Law to the Facts

The court determined that Greenway, as the party invoking federal jurisdiction, failed to allege an injury in fact because it failed to allege a concrete injury that was actual or imminent.

The Fee Paid to ERCS

Greenway alleged that the payment of $72,965.70 to ERCS formed the basis of an injury. The court rejected this position, finding that ERCS had performed the work it contracted for—filing the necessary documents and obtaining the credit—and Greenway received the benefit it bargained for, a substantial sum of money in ERTC. Furthermore, the Services Agreement limited ERCS’s liability to actual direct damages, capped at the amount ERCS received from the client.

Crucially, the agreement explicitly addressed disqualification, stating ERCS was not required to return the fee if the IRS disqualified the credit after receipt. The court treated Greenway’s voluntary decision to return the credit as equivalent to the credit being disqualified under the contract terms. Thus, the fee payment, even if the underlying credit was invalid, did not constitute an injury because ERCS had performed its contractual obligation and the contract anticipated this scenario.

Hypothetical and Speculative Harm

Greenway claimed injury because it feared the IRS reassessing its eligibility for the ERTC. The court found this fear-based harm was speculative. Greenway made no allegation that the IRS ever contacted it, attempted a clawback, audited the filing, or issued penalties. Instead, Greenway admitted that it avoided these "hypothetically potential penalties" by participating in the VDP. This type of speculative harm is not concrete or imminent.

Financial Net Positive

The court noted that Greenway financially benefitted from the VDP participation. The IRS allowed Greenway to retain 20% of the credit to account for fees incurred through services like ERCS, even though Greenway’s actual fee was only 10%. By only repaying 80% and avoiding interest and penalties, Greenway still maintained a net positive financial outcome after accounting for the ERCS fees.

Litigation and Consulting Costs

Greenway also alleged injury from retaining a separate professional tax consulting firm to determine eligibility and retaining counsel for the lawsuit. The court found that these costs were either anticipated by the Services Agreement (which stated Greenway was not relying on ERCS’s representations) or were incurred in preparation for litigation. Costs incurred to bring a lawsuit cannot themselves provide standing, as a party cannot "manufacture standing merely by inflicting harm on themselves based on their fears of hypothetical future harm that is not certainly impending" (Clapper v. Amnesty Interntl. USA, 568 U.S. 398, 416 (2013)).

Conclusions of the Court

The court concluded that the allegations in the Complaint failed to demonstrate a concrete injury. Because Greenway was net positive through the process of obtaining and voluntarily returning the credit, the retention of the agreed-upon fee by the Defendants could not constitute a financial injury to the Plaintiff (Tri-Cities Restoration LLC v. ERC Specialists, LLC, Case No. 2:24-cv-00816-RJS-DBP, 2025 WL 2050096, 5 (D. Utah July 22, 2025)).

Greenway failed to meet its burden of demonstrating standing (Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992)). Without standing, the federal court lacked jurisdiction to hear Greenway’s federal RICO claim. Accordingly, the court was compelled to decline to exercise supplemental jurisdiction over Greenway’s state law claims.

The court GRANTED the Motions to Dismiss filed by both the ERCS Defendants and the TRS Defendants under Federal Rule of Civil Procedure 12(b)(1) for lack of Article III standing.

Prepared with assistance from NotebookLM.