Lamb McErlane PC, a Pennsylvania-based law firm, has filed a lawsuit against the United States government, alleging undue delays in processing its Employee Retention Credit (ERC) claim. The suit, filed on August 4, 2023, in the U.S. Court of Federal Claims, seeks to compel the Internal Revenue Service (IRS) to expedite the processing of these claims.
According to the complaint, Lamb McErlane submitted an amended Form 941-X for the second quarter of 2021 on April 14, 2022, claiming an ERC of $702,840. The firm asserts that despite the statutory 45-day processing requirement, the IRS has yet to act on their claim, more than 15 months after its submission.
Joel Frank, chairman and managing partner at Lamb McErlane, expressed frustration with the situation, stating, “The IRS’s failure to timely process ERC claims has caused significant financial hardship for many businesses, including our firm.”
This legal action comes amid a broader context of IRS struggles with ERC claim processing. The agency has acknowledged a substantial backlog, attributing it to staffing shortages and the complexity of verifying eligibility. As of May 18, 2024, the IRS had approximately 1.4 million pending ERC claims, according to a declaration by IRS Deputy Commissioner Douglas O’Donnell in a separate legal case[2][5].
The IRS implemented a moratorium on processing new ERC claims on September 14, 2023, to address concerns about potentially improper claims. IRS Commissioner Danny Werfel stated, “We are working diligently to address the backlog of ERC claims while also ensuring the integrity of the program”[2].
The lawsuit filed by Lamb McErlane is not an isolated incident. Other businesses have taken similar legal action against the IRS. For instance, on January 12, 2024, a Texas employer filed a lawsuit claiming that the IRS had failed to issue an ERC refund despite a two-year wait[3].
In response to the growing backlog and legal challenges, the IRS has implemented several initiatives. These include a Voluntary Disclosure Program (VDP) that allowed taxpayers to correct erroneous claims without additional penalties or interest. The program, which ended on March 22, 2024, generated over $225 million from more than 500 taxpayers[5].
As the IRS continues to grapple with the ERC claim backlog, it has announced plans to process claims on a first-in, first-out basis, starting with those filed before the moratorium. However, Deputy Commissioner O’Donnell warned that “We expect the pace to go slowly and judiciously as we continue to refine our analytical tools”[3].
The outcome of Lamb McErlane’s lawsuit and similar legal actions could have significant implications for businesses across the country still waiting for their ERC claims to be processed. As this story develops, it will likely draw increased attention to the challenges faced by both taxpayers and the IRS in administering pandemic-related relief programs.
Citations:
[1] https://news.bloomberglaw.com/us-law-week/pennsylvania-law-firm-sues-us-over-erc-tax-credit-claim-delay
[2] https://www.irs.gov/newsroom/irs-enters-next-stage-of-employee-retention-credit-work-review-indicates-vast-majority-show-risk-of-being-improper
[3] https://www.forbes.com/sites/matthewroberts/2024/06/17/in-pending-litigation-irs-reveals-strategy-for-managing-erc-backlog/
[4] https://www.venable.com/insights/publications/2024/05/ertc-refund-lawsuits-is-now-the-time-to-file
[5] https://www.kiplinger.com/taxes/what-is-happening-with-the-employee-retention-tax-credit
[6] https://www.foxrothschild.com/publications/why-some-taxpayers-with-unprocessed-erc-claims-should-consider-filing-a-refund-lawsuit
[7] https://www.irs.gov/newsroom/irs-moves-forward-with-employee-retention-credit-claims-agency-accelerates-work-on-complex-credit-as-more-payments-move-into-processing-vigilance-monitoring-continues-on-potentially-improper-claims
Last modified: June 20, 2025
