Key Meetings, Inc. v. United States, Case No. 25-cv-06520-WHO (N.D. Cal. June 26, 2026) and Juggler Dave & Friends, LLC v. United States, 181 Fed. Cl. 52 (2026)

The retroactive termination of the Employee Retention Credit (ERC) for the third quarter of 2021, enacted under the One Big Beautiful Bill Act (OBBBA), has survived two major constitutional challenges in the federal courts. Enacted on July 4, 2025, Section 70605(d) of the OBBBA established a retroactive deadline of January 31, 2024, for all claims seeking the ERC for the third quarter of 2021. Under this provision, notwithstanding Section 6511 of the Internal Revenue Code of 1986, "no credit under section 3134 of the Internal Revenue Code of 1986 shall be allowed, and no refund with respect to any such credit shall be made, after the date of the enactment of this Act, unless a claim for such credit or refund was filed by the taxpayer on or before January 31, 2024" (Pub. L. 119-21, § 70605(d), 139 Stat. 72 (2025)).

This sudden statutory contraction of the filing window has caught many late-filing taxpayers in its net, leading to aggressive litigation under the Due Process Clause of the Fifth Amendment. Two recent decisions—Key Meetings, Inc. v. United States in the Northern District of California and Juggler Dave and Friends, LLC v. United States in the Court of Federal Claims—have solidly rejected these constitutional challenges, establishing a formidable shield for retroactive tax administration.

Factual Background of the Key Meetings Dispute

The plaintiff, Key Meetings, Inc. ("Key Meetings"), is a corporate event planning company located in San Francisco, California. On or about August 28, 2024, Key Meetings filed IRS Form 941-X, seeking ERC refunds for the first, second, and third quarters of 2021. This request comprised a refund of $63,000.00 for the first quarter, $56,000.00 for the second quarter, and $56,000.00 for the third quarter, totaling $175,000.00. At the time of filing, Key Meetings met the substantive eligibility requirements for the ERC across all three quarters and was well within the existing statutory period of limitations.

However, the subsequent enactment of Section 70605(d) of the OBBBA retroactively barred its third-quarter claim, as the company's filing on August 28, 2024, occurred nearly seven months after the newly imposed January 31, 2024, deadline. Following the government's refusal to process the third-quarter refund, Key Meetings filed suit in federal district court on August 1, 2025, asserting that its claim for the third quarter could not be rejected because Section 70605(d) violated the Due Process Clause.

The Taxpayer's Request for Relief and Constitutional Arguments

In response to the government’s partial motion to dismiss Count Three—which specifically sought the third-quarter refund because that claim is barred by Section 70605(d)—Key Meetings opposed, arguing that Section 70605(d) is unconstitutional. Key Meetings raised several technical arguments to support its claim of unconstitutionality.

First, it asserted that the court could not resolve constitutional balancing questions at the motion to dismiss stage, arguing that Rule 12(b)(6) "does not permit the Court to resolve constitutional balancing questions or to accept Defendant’s characterization of legislative purpose as a matter of law." Second, Key Meetings argued that the retroactive cutoff was entirely arbitrary, "bears no rational relation to the prevention of fraud," and excluded otherwise valid, non-fraudulent claims. Third, it pointed out that Congress had other, more narrowly tailored statutory mechanisms in the OBBBA to combat fraud, such as extending the period during which the IRS can review ERC claims for fraud and increasing the penalties against fraudulent "COVID-ERTC promoter[s]" who many believe created the majority of identified ERC fraud. Fourth, the taxpayer claimed a protected reliance interest, stating it had reasonably relied upon the then-current ERC filing deadline and was harmed by retaining staff it would have laid off without its ERC eligibility. Finally, Key Meetings argued that the Section 70605(d)’s 16-month retroactive period was excessive and "severe" due to its complete bar on previously valid claims.

The Judicial Standard for Retroactive Economic Legislation

To evaluate the constitutionality of Section 70605(d), Senior District Judge William H. Orrick applied the long-established due process standard for retroactive economic and tax legislation. Under the Supreme Court's landmark decision in United States v. Carlton, 512 U.S. 26 (1994), retroactive economic legislation satisfies the Due Process Clause if it is supported by a "legitimate legislative purpose" that is furthered by "rational means." This standard is highly deferential; the court noted that "[r]etrospective economic legislation need only survive rational basis review in order to pass constitutional muster" (quoting Gadda v. State Bar of Cal., 511 F.3d 933, 938 (9th Cir. 2007)).

While legislation with retroactive impact faces an additional due process barrier compared to conventional forward-looking measures, "...that burden is met simply by showing that the retroactive application of the legislation is itself justified by a rational legislative purpose" (quoting Pension Ben. Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 730 (1984)). The Ninth Circuit utilizes a "deferential" standard to evaluate due process challenges to retroactive tax legislation, asking "whether [the] retroactive application itself serves a legitimate purpose by rational means" (quoting Moore v. United States, 36 F.4th 930, 938 (9th Cir. 2022)).

Importantly, no evidence about the legislature’s actual intent is required for a statute to pass rational basis scrutiny, only that the legislature "could have concluded rationally" that the facts warranted a statutory response (referencing Williamson v. Lee Optical, 348 U.S. 483, 487-88 (1955) and Vance v. Bradley, 440 U.S. 93, 111 (1979)). As the Supreme Court recognized in U.S. R.R. Ret. Bd. v. Fritz, it is "constitutionally irrelevant" whether the plausible reasons identified for a statute are Congress's actual reasons, especially where the statute draws lines (449 U.S. 166, 179 (1980)). Furthermore, Judge Orrick confirmed that numerous courts have resolved Due Process Clause challenges at the 12(b)(6) stage, brushing aside the taxpayer's contention that constitutional balancing questions cannot be resolved on a motion to dismiss.

Application of the Law to the Facts in Key Meetings

Applying the Carlton framework, the district court held that Section 70605(d) easily passed rational basis review. Key Meetings did not dispute that Congress had a legitimate legislative interest in addressing the increase in fraudulent ERC claims that started in 2023. Moreover, the court took judicial notice of several legislative sources, including a congressional release, a congressional report, and press releases from the IRS and a United States Senator, showing that ERC claims filed after January 31, 2024, had a higher rate of fraud. Judge Orrick ruled that Section 70605(d)’s January 31, 2024, cutoff date for new ERC claims "is a plausible and rational response to that concern because it bars claims Congress believed were more likely to be fraudulent than others."

The court rejected Key Meetings’ attempt to distinguish Carlton by claiming that Carlton involved a drafting error, whereas Section 70605(d) represented a "deliberate policy choice" to abandon the government’s prior obligations. Instead, the court held that because "this rate of fraud was not anticipated by the original ERC statute, Congress acted to “cure” the newly revealed flaw in that statute by restricting ERC eligibility retroactively." Addressing Key Meetings' contention that the alternative anti-fraud provisions in the OBBBA were more rational, Judge Orrick cited Armour v. City of Indianapolis, 566 U.S. 673, 685 (2012), for the principle that "[t]he Constitution does not require legislators to implement only the most efficient or effective solutions to identified problems, only rational ones."

The court also dismissed the taxpayer's reliance argument, concluding that Key Meetings' waiting years to file "eliminated any reliance interest Key Meetings might have held in its ERC credit." Even if Key Meetings had a reliance interest in the pre-existing deadline, "reliance alone is insufficient to establish a constitutional violation" (citing Carlton, 512 U.S. at 33). Finally, the court held that the 16-month retroactivity period was not an outlier because "courts have upheld similarly long and longer retroactive periods for other tax provisions," including a 14-month retroactive tax in Carlton and a 4-year retroactivity period in Licari v. Commissioner, 946 F.2d 690 (9th Cir. 1991).

Consequently, Judge Orrick granted the government’s motion and dismissed Count Three of the Amended Complaint without leave to amend. The court additionally dismissed a waived oral argument that sought to distinguish Section 70605(d) on the basis that it imposed a "purely" procedural change in deadlines rather than a substantive change, noting that "other courts have applied the same rational basis review to “purely” procedural changes."

A Comparative Analysis of Juggler Dave and Friends

The district court’s reasoning in Key Meetings heavily relied on and was "persuaded" by the Court of Federal Claims' decision in Juggler Dave and Friends, LLC v. United States, 181 Fed. Cl. 52 (2026). In Juggler Dave, the plaintiff was an Ohio business that submitted Forms 941-X on May 1, 2024, claiming ERC refunds of $47,748.73 for Q1, $65,142.74 for Q2, and $218,673.56 for Q3 of 2021. The government paid the claims for Q1 and Q2 because they had been filed before January 31, 2024, but moved to dismiss the remaining Q3 claim under Rule 12(b)(6) of the Rules of the Court of Federal Claims (RCFC), invoking the OBBBA retroactive deadline as a bar. Like Key Meetings, Juggler Dave argued that the 16-month retroactive time bar was unconstitutional and violated the Due Process Clause of the Fifth Amendment.

However, the Court of Federal Claims structured its due process analysis around the Federal Circuit's five-factor test set forth in GPX Int’l. Tire Corp. v. United States, 780 F.3d 1136, 1142 (Fed. Cir. 2015), which looks to: "(1) whether the provision is “wholly new,” (2) resolves uncertainty in the law (curative in nature), or (3) is remedial; (4) the length of the retroactivity period; and (5) whether affected parties had notice of the potential change before engaging in the regulated conduct."

In applying the first GPX factor, the Court of Federal Claims rejected the plaintiff's argument that the ERC time bar constituted a "wholly new tax," which would face a higher level of due process scrutiny. Judge Hertling explained that a "wholly new tax" imposes a new and previously nonexistent tax liability on completed transactions, whereas the OBBBA time bar "acts to restrict taxpayers from claiming the previously available credit but does not create new or additional tax liability for any taxpayer."

Applying the second and third GPX factors, the court found Section 70605(d) is "curative and remedial in nature" because it was designed to combat widespread ERC fraud, protect public revenue, and bring finality to pandemic-era relief programs. Specifically, the court noted that "Congress may seek to prevent fraud and the attendant revenue loss arising as an unintended consequence of a tax-credit program by limiting the tax credit or otherwise reforming it retroactively without running afoul of the due process clause."

On the fourth GPX factor (length of retroactivity), both courts agreed that a 16-month period was constitutional, with the Court of Federal Claims noting that "there is no fixed limit on retroactivity" and that courts have routinely upheld much longer periods. Indeed, Judge Hertling highlighted that the Federal Circuit in GPX had upheld a retroactive period of "a little over five years," while citing Supreme Court cases that had approved periods of six and seven years.

Finally, on the fifth GPX factor (notice and reliance), both courts emphasized that taxpayers were on notice of possible changes as early as 2023 due to the widely publicized IRS moratorium (IR-2023-169) and legislative proposals like H.R. 7024. Judge Hertling concluded that because the taxpayer waited over two and a half years to file its amended return, it had no reliance interest, stating: "Neither the Constitution nor Supreme Court precedent confers a vested right to tax credits or guarantees perpetual reliance on prior tax laws and regulations."

The comparison between these two cases is summarized as follows:

Jurisdictional Forum: Key Meetings was decided in the U.S. District Court for the Northern District of California (Ninth Circuit law), while Juggler Dave was decided in the U.S. Court of Federal Claims (Federal Circuit law).
Core Constitutional Test: Key Meetings relied on the direct, two-prong Carlton rational basis standard, whereas Juggler Dave utilized the detailed, five-factor GPX balancing test.
"Wholly New Tax" Analysis: In Juggler Dave, the plaintiff explicitly raised and the court analyzed whether the cutoff constituted a "wholly new tax"; in Key Meetings, the court touched upon this by citing Juggler Dave's conclusion that Section 70605(d) "did not impose a retroactive 'wholly new tax'."
Procedural vs. Substantive Distinction: Key Meetings explicitly addressed a waived procedural argument, ruling that even if considered, "purely procedural" retroactive changes (such as filing deadlines) are subjected to the same rational basis standard as substantive changes.

CPA Takeaways and Practical Implications

For CPA and EA tax practitioners, these rulings establish a clear and rigorous precedent: retroactive changes to tax credits face an extremely low constitutional hurdle under rational basis review. The decisions demonstrate that the government possesses broad authority to retroactively limit or eliminate tax benefits to prevent fraud and protect public revenues. Under Carlton and GPX, the courts will not second-guess the "narrow tailoring" or "efficiency" of a legislative deadline, nor will they protect taxpayers who wait years to claim a benefit under the guise of a "reliance interest."

Practitioners must counsel clients that tax-credit programs remain "administratively active" and subject to retroactive legislative amendment until cases are fully resolved. Ultimately, both the Northern District of California and the Court of Federal Claims have solidified that "the retroactive application of section 70605(d) does not violate due process, and the plaintiff’s claim, filed after the statutory deadline, must be dismissed."

Prepared with assistance from NotebookLM.