Businesses facing ERC-related lawsuits often report issues such as: 

• Disputes over contingency fee agreements
• Questions about whether services were actually performed
• Claims that the small business failed to provide necessary documents
• Unexpected or excessive fee demands

Not all claims are valid, and many can be challenged depending on the facts.

Small businesses across the country report being sued in Florida, sometimes for services that were improperly provided, or that were never provided. Complaints online show a trend of litigation involving “ERC promoters” like ERC Specialists and Payroll LLC. The IRS began warning about ERC promoters as early as 2023, but they continued appearing all over the country. Now that the dust has settled and the deadline for filing for ERC credits has passed, small businesses are learning more about the deals they made when they were desperate to stay afloat and relied on representations made by ERC promoters.

 

Common Issues in ERC Lawsuits:

Lawsuits involving ERC promoters tend to involve a few main themes:

Theme #1

A small business hires an ERC promoter to prepare and submit filings to the IRS, and as a result, the business receives ERC funds. The promoter then demands what may be an excessive fee, often ranging from 15% to 30% of the ERC funds received.

Whether raised defensively in response to a collection lawsuit or affirmatively based on claims of exploitation, these cases usually involve questions about the lawfulness contingency fees for tax-related services. If such fees are deemed lawful, courts may then consider whether the fees charged were unconscionable. 

To date, available case law appears to favor ERC promoters. These cases may be strong candidates for settlement, where the business pays a reduced amount reflecting the value of services performed. Promoters may be open to compromise due to the broader risk of an adverse ruling that could impact their ability to recover fees in other cases. 

Theme #2

A small business owner receives ERC funds but later learns that the business was not actually eligible for an ERC credit. In that situation, the business must evaluate whether voluntary disclosure under a specific IRS disclosure program is appropriate. 

If so, the business may seek to recover certain costs from the ERC promoter. However, courts addressing these affirmative claims have suggested that if the business is financially better off as a result of the agreement than it would have been otherwise, it may lack the injury required for standing.

Here again, settlement may be advantageous. The business seeks to avoid repaying ERC funds while also paying the promoter, and the promoters may prefer to avoid scrutiny of their practices, particularly where high-volume processing may not have met professional standards.

Theme #3

A small business signs an agreement with an ERC promoter, exchanges some communication, and maybe provides documents -but the promoter never submits anything to the IRS. Later, the promoter pops up demanding fees equal to a percentage of ERC funds it claims the business could have received.

These claims often disregard whether any funds were actually obtained. Unlike complaints based on concrete facts, these cases rely on hypothetical scenarios – asserting that if the business had received ERC funds, the promoter would be entitled to a percentage, regardless of whether any work resulted in such funds. 

These cases are often worth challenging. Because businesses in Florida must be represented by counsel in court, promoters – often working with a network of collection law firms – may have a procedural advantage. 

If you know a small business facing this type of litigation, consider referring them to Mayer Law, which has experience in defending businesses in ERC-related disputes and in other business litigation matters. The firm can be contacted through its website, or by email to Nicole@MayerLawFlorida.com.