Case: ERC Today, LLC v. McInelly, Case No. 25-2642 (9th Cir. Mar. 17, 2026)
We previously discussed the US District Court for the District of Arizona’s April 2025 order denying a motion for a preliminary injunction filed by two tax preparation firms challenging the Internal Revenue Services’ (IRS) automated “risking” model for processing Employee Retention Credit (ERC) claims. The firms appealed, and on March 17, 2026, the US Court of Appeals for the Ninth Circuit affirmed the district court’s denial – but the way in which it did so warrants attention.
Standing, but not substance
The Ninth Circuit affirmed on the narrow ground that the tax preparation firms failed to demonstrate Article III standing. The Court found that the firms offered no evidence that they were making less money or spending more on representations because of the IRS’s processing approach. The Court also rejected claims of procedural and reputational injury, holding that IRS administrative procedures are designed to protect taxpayers, not the economic interests of third-party contingency fee firms.
Given the standing ruling, the Court did not address whether the IRS’s Disallowance During Processing program, which uses automated risk models to categorically disallow thousands of claims without individualized review, violates the Administrative Procedure Act or is otherwise unlawful. Those questions remain open. A challenge brought by a party with proper standing could reach those merits and might reveal the program to be infirm.
The future of taxpayer challenges
This decision comes as the IRS closes the book on ERC processing. In February 2026, the IRS announced it had closed all non-examined ERC claims as of December 31, 2025, meaning businesses whose claims were closed without payment must now pursue litigation to secure their refunds.
Unlike the tax preparation firms in ERC Today, taxpayers whose claims have been disallowed can engage the jurisdiction of a refund court under Internal Revenue Code Sections 6532 and 7422 and would have no standing issues. They would be better positioned to test the legality of the IRS’s automated processing procedures on the merits and should consider raising the argument in their complaint. As we have previously cautioned, however, taxpayers must remain vigilant about statutes of limitations: Administrative delay does not eliminate judicial deadlines, and a protest to the IRS Independent Office of Appeals does not suspend the two-year period under Section 6532(a) to file a refund suit.
