In a welcome pre-Thanksgiving upswing, ERC refund activity rebounded sharply from last week’s historic low. The IRS issued 162 refunds, marking one of the stronger weeks of the fall and more than tripling last week’s output. Refund volume reached $53.07 million, and while the average refund dipped to $327,650, activity remains firmly in the “healthy but uneven” category that has defined ERC processing for most of 2025.
The story beneath the surface, however, isn’t just the refund recovery — it’s the spike in disallowances. This week saw 78 new denials, a meaningful jump driven largely by the IRS finally beginning to clear its inventory of “OBBBA-killed” claims (those filed after January 31, 2024, for Q3/Q4 2021). These files, awaiting their IRS execution, have been dormant for months, and their movement appears to be purely administrative rather than substantive, but the volume is still noteworthy.
Despite the enforcement bump, audit activity remains utterly flat: zero new audits, including none for the entire month so far. And the refund pipeline continues to move, albeit slowly, with the average days between filing and refund climbing to 643, driven by the clearing of older inventory, with a large proportion of these being pre-January 31, 2024-filed Q3 2021 claims that had been stale
It’s far from a perfect week, but the rebound heading into the holiday is a welcome reminder that momentum can return just as quickly as it fades.
📈 Total Refunds: 162
A strong recovery from last week’s 43, more than a 275% increase and a return to trendline activity.
📈 Total Dollar Volume: $53.07M
While below the highs of recent months, this is a meaningful jump from last week’s depressing $24.49M.
📉 Average Refund: $327,650
A decline from last week’s $569,556 and reflective of a more “middle-market” mix of claims, including stale Q3 21. Still staying higher than historical norms.
📈 Average Days Between Filing and Refund: 643
A notable rise from 459 last week, driven by the IRS continuing to clear its deepest-aged inventory with a predilection toward those Q3 21 that were seemingly being held in IRS purgatory.
1. Senate Proposes 4% IRS Funding Cut for FY 2026
The Senate’s FY 2026 Financial Services and General Government bill proposes a 4% funding cut to the IRS, setting up yet another partisan clash between the House, Senate, and the Trump administration. The Senate bill would fund the IRS at $11.8 billion, far above the House’s proposed $9.5 billion, but still below current-year levels.
Key highlights:
The divide echoes last year’s appropriations battle, which ultimately ended in a continuing resolution rather than a negotiated compromise. With a January 30, 2026 deadline and both chambers entrenched, another standoff seems increasingly likely.
Why this matters for ERC:
Flat enforcement funding in the Senate’s version may slow long-term audit expansion, but House Republicans’ push for a 45% enforcement cut could reshape the IRS’s ability to process backlogs — including the remaining ERC inventory — in 2026. The takeaway: the IRS may face another year of “just enough” resources to keep the lights on, but not enough to meaningfully improve processing speed or Appeals functionality.
2. According to a Recent TaxNotes Article: PEOs Are Adding to ERC Backlog and Withholding Refunds
A recent TaxNotes piece by Trevor Sikes highlights a growing pain point in the ERC world: Professional Employer Organizations (PEOs) may be contributing disproportionately to the IRS’s backlog — and, in some cases, reportedly withholding ERC refunds from their employer clients.
Key insights:
TaxNow Insight:
For clients still waiting on ERC refunds filed through a PEO, delays may have less to do with IRS behavior and more to do with PEO pipeline congestion — or withholding. In 2026, we expect litigation, arbitration, and legislative attention to this issue to intensify.
TaxNow's Take:
This week’s pre-Thanksgiving rebound is encouraging, especially after the all-time low we saw just seven days ago. The refund pipeline clearly isn’t closed, even if processing remains uneven and sluggish. The surge in denials is the real headline beneath the headline, but context matters: these appear to be administrative OBBBA clear-outs, not a shift in enforcement posture or risk tolerance.
Meanwhile, audit activity remains silent, and the refund pipeline, even at 643 days, continues to move. For a holiday-short week in a still-restarting IRS, that’s not the worst place to be.
As we head into Thanksgiving, the ERC landscape remains a mix of progress, delays, and policy noise, but the system is moving, and the year isn’t over yet.
Signing off!
Kenny Dettman, CPA
Disclaimer: *𝘋𝘢𝘵𝘢 𝘴𝘦𝘵 𝘪𝘴 𝘧𝘳𝘰𝘮 𝘢𝘱𝘱𝘳𝘰𝘹𝘪𝘮𝘢𝘵𝘦𝘭𝘺 14,000 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴𝘦𝘴 𝘵𝘳𝘢𝘤𝘬𝘪𝘯𝘨 𝘌𝘙𝘊*
