If your small business has been sued over an ERC agreement, you may have important defenses and options. These cases often involve disputes over contingency fees for services allegedly provided.
Acting quickly is critical because Florida law imposes strict deadlines to respond. And Florida law requires that businesses appearing in court be represented by a Florida attorney when they respond.
Mayer Law has experience handling ERC-related disputes and is well-positioned to offer strategic, effective representation for businesses facing these types of claims.
Businesses facing ERC-related lawsuits often encounter disputes involving:
The filing of a lawsuit does not mean that the plaintiff’s claims are valid. Whether an ERC service provider is entitled to recover depends on the language of the parties’ agreement, the services actually performed, whether ERC funds were obtained, and the particular facts of the case.
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, and publicly available court records, show a trend of litigation involving ERC service providers like ERC Specialists and Payroll LLC.
The IRS began warning businesses about aggressive marketing of ERC services as early as 2023. Among other things, the IRS cautioned employers about what it described as aggressive marketing, percentage-based fees, and overly broad representations concerning ERC eligibility.
Now that the deadline for filing for ERC credits has passed, disputes have increasingly shifted to the agreements businesses entered into during the height of the ERC program. Those disputes can raise important questions: What services did the provider promise to perform? What work was actually performed? Did the business qualify for ERC? Did it receive ERC funds? And, perhaps most importantly, does the parties’ agreement actually entitle the service provider to the fee it now demands?.
Common Issues in ERC Lawsuits:
Based on the hundreds of ERC-related complaints and agreements Mayer Law has reviewed, these disputes generally fall into a few recurring categories.
Theme #1 The Business Received ERC Funds and Disputes the Fee
In the first category, a small business hires an ERC service provider to assist with preparing and submitting an ERC claim. As a result, the business receives ERC funds and the ERC service provider then seeks a contractual fee – often calculated as a percentage of the ERC obtained. These often range between 15% to 30% of the ERC funds received.
These cases usually involve questions about the lawfulness of 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 service providers. These cases may be strong candidates for settlement, where the business pays a reduced amount reflecting the value of services performed. ERC service providers 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 The Business Received ERC Funds but Later Questions Whether It Was Eligible
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 service provider. 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 ERC service provider, and the ERC service provider may prefer to avoid scrutiny of their practices, particularly where high-volume processing may not have met professional standards.
Theme #3 The Business Never Received ERC Funds – or the Service Provider Never Submitted the Claim
The third category can present very different issues.
A small business may sign an agreement with an ERC service provider and exchange communications or documents, but the provider never submits an ERC claim to the IRS. In many cases, no ERC funds are ever received. In other cases, the small business may have ultimately obtained ERC funds using a different ERC service provider after not hearing back from another, or even after one ERC service provider has told the small business it did not qualify for ERC funds.
Nevertheless, the business may later receive a demand – or even be sued – for a substantial fee.
Some ERC-related complaints reviewed by Mayer Law seek damages based on ERC benefits the provider contends the business could have received, rather than ERC funds the business actually obtained. Others allege that the business prevented the ERC service provider from completing its work by failing to provide documents, communicate, or otherwise cooperate. While others claim entitlement to any ERC funds obtained by a small business even where an accountant, a law firm, or a different ERC service provider ended up doing all of the work.
Those allegations do not necessarily establish a right to payment.
The language of the parties’ agreement matters. Among other things, the relevant questions may include:
These distinctions can be significant. A demand based on a percentage of ERC funds actually obtained as a result of a provider’s work presents a very different case from a demand based on hypothetical ERC benefits the business never received.
Cases in this third category may present substantial defenses, particularly where the provider did not complete the work contemplated by the agreement, the business received no ERC funds, or the amount demanded depends upon assumptions about benefits the business might have received.
Procedural Considerations for Businesses Sued in Florida
Regardless of the merits of the underlying claim, a business should not ignore an ERC-related lawsuit.
A corporation generally cannot represent itself in Florida court and must appear through counsel. A business that fails to respond to a complaint within the applicable deadline may face a default, potentially allowing the plaintiff to obtain relief without the court ever deciding many of the defenses the business could have asserted. This can have significant consequences. Mayer Law has reviewed ERC-related cases in which default judgments for tens or even hundreds of thousands of dollars were entered against small businesses that did not appear to defend the lawsuit. In some cases, the damages awarded were based on estimates of ERC benefits the plaintiff alleged the business could have received, rather than ERC funds the business actually received. A business that fails to defend a lawsuit may therefore face a substantial judgment based on alleged or hypothetical ERC amounts without ever having presented evidence that it received no ERC funds or that the claimed fee was not actually owed.
Businesses should therefore have both the complaint and the underlying ERC agreement reviewed promptly.
Facing an ERC-Related Lawsuit?
Mayer Law represents businesses in disputes with ERC Service Providers, including businesses sued by Payroll LLC for percentage-based fees, termination fees, and other compensation allegedly owed under ERC service agreements.
Every case depends on its own facts and contractual language, and prior results do not guarantee a similar outcome. But the fact that an ERC service provider has demanded payment—or filed a lawsuit—does not necessarily mean that the amount demanded is actually owed.
If your business has been sued by an ERC service provider, Mayer Law can review the complaint, the ERC service agreement, and the circumstances surrounding the claim to evaluate the defenses that may be available.
These cases are often worth challenging. Because businesses in Florida must be represented by counsel in court, ERC service providers – often working with a network of collection law firms – may have a procedural advantage.
Be Cautious About Requests for IRS Form 8821.
Before or after filing a lawsuit, an ERC service provider or its attorney may contact a small business seeking authorization to access the business’s IRS records, often by asking the business to execute IRS Form 8821. The request may be presented as necessary to “close out your account,” confirm the status of an ERC claim, or resolve an outstanding matter. Businesses should understand, however, that Form 8821 can give the requesting party access to IRS tax information that may reveal whether the business received ERC funds—and that information could potentially be used in a later or pending lawsuit. Small business owners should therefore exercise caution before providing an ERC service provider or its counsel with access to IRS records and consider consulting their own attorney before signing such an authorization.
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.