A few years ago, lenders were asking whether a borrower would receive an Employee Retention Credit (ERC) refund. Today, many are asking a different question: Will that borrower have to pay it back?
That change says as much about the IRS as it does about the ERC.
Over the past several years, the IRS has undergone one of the most significant operational transformations in its history. The agency has reduced its workforce, accelerated modernization efforts, expanded its use of automation, and shifted its focus from administering pandemic relief programs to enforcing compliance. Recent reports from the Treasury Inspector General for Tax Administration (TIGTA) illustrate the scale of that transformation—and why it matters to lenders.
The IRS isn’t necessarily more aggressive than it was five years ago. It is, however, operating differently. As businesses navigate longer resolution timelines, evolving procedures, and increased documentation requirements, tax issues no longer end with the liability itself. Today, successful resolution often depends on how early issues are identified and how quickly they are addressed.
The Numbers Tell the Story
No single 2026 TIGTA report captures the full picture. Together, however, they reveal a common theme: the IRS is attempting to transform how it operates while continuing to administer one of the world’s largest tax systems. One of the most significant changes has been the agency’s workforce.
Between January 2025 and January 2026, more than 31,000 employees separated from the agency, resulting in a net workforce reduction of approximately 28%. Those departures affected nearly every major function, including Revenue Officers, Tax Examiners, and Information Technology personnel. TIGTA reports highlight growing inventories of amended returns and taxpayer correspondence. Similarly, approximately 40% of employees aged 55 and older left during that period, taking significant institutional knowledge with them. The practical impact isn’t simply fewer IRS employees; it’s that the remaining employees are managing larger workloads while trying to support modernization efforts without a deep bench of experience. Successful resolution increasingly depends on starting the process early enough to get the case assigned to an agent to negotiate before notices are filed.
Automation Has Limits
The IRS has invested heavily in automation, artificial intelligence, and data analytics to improve efficiency and better allocate limited resources. Those tools can work well for routine returns, standardized correspondence, and data-driven compliance initiatives. However, they are less effective with business tax issues.
The National Taxpayer Advocate’s Fiscal Year 2027 Objective Report to Congress highlights that technology is improving routine tax administration, but not complex resolution cases. For instance, a payroll tax discrepancy may require tracing deposits across multiple tax periods. Or, a payment may post to the wrong tax period, creating collection notices despite the taxpayer having already paid the liability. Beyond that, negotiating an affordable installment agreement or obtaining a subordination of federal tax lien often requires strategic planning and coordination with multiple IRS departments. These situations require experienced IRS employees to review facts, reconcile accounts, and exercise judgment.
Automation can handle basic tasks. People resolve exceptions.
The ERC Is an Example of the IRS’s New Reality
No issue illustrates the IRS’s transformation more clearly than the Employee Retention Credit program. When Congress created the ERC in 2020, the goal was to provide immediate liquidity to employers that kept workers on payroll during the pandemic. Over the next several years, millions of businesses filed claims, and the IRS issued hundreds of billions of dollars in credits.
Now that the filing period has closed, the IRS has shifted from processing claims to scrutinizing them. As of May 30, 2026, approximately 20,600 ERC claims remained in the pipeline, spanning from examinations and pending disallowances to taxpayer responses and appeals. The agency has also introduced withdrawal procedures, voluntary disclosure programs, and new appeal processes — reflecting the complexity of resolving claims after the program has closed. What began as a relief initiative designed to inject cash into businesses has become, for some employers, an unexpected source of financial and operational risk.
Importantly, the ERC is not an isolated issue. It represents the IRS’s broader transition from pandemic relief to compliance enforcement. The agency has redirected its attention toward verifying claims, protecting government revenue, and addressing improper payments. For lenders, the implications extend beyond the credit itself. A borrower expecting additional liquidity from an ERC refund may instead face a lengthy examination, an unexpected tax assessment, or the need to defend or repay an already received, and spent, refund.
Time is of the Essence for Lenders
The IRS’s changing operating environment has made one thing increasingly clear: timing matters. For businesses and lenders, tax issues are still manageable. Successful resolution, however, increasingly depends on starting the process early enough to preserve available options.
Tax resolution has never been an overnight process, but recent TIGTA reports suggest businesses should expect longer and less predictable resolution timelines. A matter that once remained with a single revenue officer may now pass through multiple revenue officers or managers before reaching a resolution.
Businesses that address payroll tax liabilities, respond promptly to IRS notices, and seek resolution before enforcement begins, often have more flexibility than those forced to react after a federal tax lien has been filed. The same holds true for lenders. Early action gives borrowers and their representatives the time needed to establish compliance, negotiate an installment agreement, and, when necessary, pursue a subordination of federal tax lien before financing opportunities become limited. Today’s environment rewards proactive resolution to help financing relationships remain intact.