From Relief to Recovery: Why ERC Is the Next Front in the War on Fraud

THE ERC conversation has changed.

For many businesses, the Employee Retention Credit (ERC) used to mean one thing: Pandemic relief. Today, it means something very different: audit-readiness, documentation strength and exposure to enforcement.

That shift is exactly why ERC audit risk is now a boardroom issue, not just a tax filing issue.

Recent political rhetoric around fraud enforcement, new GAO findings on ERC administration and years of escalating IRS ERC enforcement actions all point in the same direction: The ERC era did not end when claims slowed down; it entered a new phase.

Relief Is Over. Recovery (and Review) Is Here

The ERC was designed as emergency relief during the COVID-19 pandemic. But emergency programs often face a second chapter: Oversight, clawbacks, disallowances, audits and fraud enforcement.

That’s where we are now.

In President Donald Trump’s February 2026 State of the Union address, he publicly announced a federal “war on fraud.” Whether you agree with the politics, the practical takeaway for business owners is simple: Fraud enforcement is a high-visibility national priority right now.

When fraud enforcement pressure rises, the IRS doesn’t just look at “bad actors.” It often increases scrutiny across entire categories that have already shown a high risk of improper payments, and ERC is a clear example.

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What the GAO Findings Mean for ERC Filers

In February 2026, the United States Government Accountability Office (GAO) published a major review of ERC administration (GAO-26-107456). The report reinforces what many businesses and advisors have already experienced: ERC became a large, complex program with significant improper-claim risk and slow resolution.

Key GAO findings that matter for ERC audit risk:

• IRS had processed nearly 5 million ERC claims as of June 2025.
  
  
• GAO said the IRS moved quickly to administer the ERC but was less prepared to assess the risk of improper payments and to handle the surge in claims.
  
  
• IRS implemented an ERC processing moratorium in September 2023 to address improper claims.
  
  
• GAO noted that the IRS did not complete an improper payment estimate for ERC and said that a timely estimate could have helped identify causes earlier.
  
  
• GAO also highlighted that manual processing of amended returns and limited reporting data made compliance efforts more complicated.
  
  
• GAO reported that the statute of limitations has expired for assessing tax on certain paid improper ERCs, but also stated that the IRS can still pursue fraud cases indefinitely.
  
  

That last point is especially important for businesses that assume “time passed = no problem.” It doesn’t necessarily work that way in fraud-related matters. 

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IRS Actions That Signal ERC Enforcement Is Still Active

If you think  “ERC is over,” IRS actions tell a different story.

The IRS has spent the last two years building an enforcement and triage framework around ERC claims, including pauses, risk scoring, disallowances, audits, voluntary resolution options and criminal investigations.

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Signals of active IRS ERC enforcement:

1) The ERC Moratorium Was a Fraud-Control Move, Not a Program Finale

The IRS announced a moratorium on processing new ERC claims in September 2023 after concerns about aggressive marketing and questionable filings. That was an enforcement signal, not just an admin delay.

2) IRS Publicly Reported Large-Scale Disallowances and Criminal Cases

In IR-2024-203 (Aug. 8, 2024), the IRS said it had:

• Sent 28,000 disallowance letters for high-risk claims,
  
  
• Estimated that those disallowances would prevent up to $5 billion in improper payments,
  
  
• Had thousands of audits underway, and
  
  
• Initiated 460 criminal cases.

That is not clean-up language. That is full enforcement language. 

3) Bulk Recovery Pressure Didn’t Disappear After OBBBA Clawback Efforts Fell Short

Oversight and recovery pressure did not end when broader legislative clawback efforts (including OBBBA-related provisions aimed at mass recovery) failed to resolve the problem at scale fully. If large-scale recovery mechanisms do not produce the intended results, enforcement pressure can shift toward claim-by-claim review, audits, disallowances and repayment actions.

4)  IRS Continued ERC “Warning Signs” Campaigns Around Incorrect Claims

The IRS continued issuing ERC-specific warning guidance in 2024, urging businesses to review claims and resolve issues proactively to reduce exposure to audits, repayment, penalties and interest.

5) ERC Was Folded Into Broader IRS Scam-Enforcement Messaging

The IRS “Dirty Dozen” framework remained a key anti-scam communication channel and ERC promoter abuse was repeatedly incorporated into IRS warning and enforcement messaging during this cycle.

6) Voluntary Disclosure Programs Closed, But Risk Did Not Close

The second ERC Voluntary Disclosure Program closed on Nov. 22, 2024, and the IRS page now states that program information is closed/outdated. However, the IRS still points businesses to other options (including claim withdrawal, when eligible) and ongoing ERC compliance resources. Program closure does not eliminate audit or repayment risk.

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What Businesses That Already Claimed ERC Should Do Now

If your business already claimed ERC, the highest-value move today is not panic; it’s organized readiness.

A practical ERC enforcement readiness checklist

• Confirm what was filed (quarters, amounts, forms, who prepared it)
  
  
• Centralize support files (eligibility analysis, payroll data, gross receipts support, government-order analysis if used)
  
  
• Document advisor involvement (who marketed, calculated, filed, reviewed)
  
  
• Review red flags against IRS warning-sign guidance
  
  
• Know your response path if a notice, disallowance or audit letter arrives
  
  
• Plan for defense costs before you need them
  
  

Because when IRS ERC audits happen, speed and documentation quality matter.

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Harbor Shield ERC: A Prepared, Not Panicked Response

Harbor Shield ERC was built for this exact environment: heightened ERC audit risk, long-tail enforcement pressure and expensive defense costs.

It’s not about fear-based messaging. It’s about giving businesses a way to move from uncertainty to readiness.

Harbor Shield’s ERC audit defense is designed to help businesses prepare for the audit window with:

• Attorney-led defense access
  
  
• Transcript monitoring
  
  
• Documentation guidance
  
  
• Predictable defense cost coverage through a contractual guarantee model
  
  

So, instead of scrambling after a notice arrives, you can already have a plan in place.

CTA: [Explore Harbor Shield ERC Audit Defense]

H2:
ERC Is Over as a Relief Program

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ERC Audit Risk Is Not Over.

If your business has already claimed ERC, now is the time to treat it as what it has become: An audit-readiness and enforcement risk-management issue.

Next Steps:

• Protect your ERC claim here
  
  
• Download the “ERC Audit Evidence Brief” (one-pager)
  
  
• See how Harbor Shield ERC works

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