Company lacks standing to sue ERTC advisers

A district court held that an equipment wholesaler could not recover fees from two ERTC advisers, one of which helped it apply for the ERTC. The court held that the equipment wholesaler suffered no financial injury since the amount of the ERTC retained by the company from the IRS’s Voluntary Disclosure Program (VDP) was greater than the adviser’s fee. Because it had suffered no concrete injury, the equipment wholesaler lacked standing to bring its claims against the ERTC advisers, the court held.

Facts: Tax Rebate Specialists (TRS) approached Greenway Equipment Sales (Greenway), a wholesaler of John Deere equipment, about applying for the ERTC. TRS referred Greenway to ERC Specialists (ERCS) for assistance in applying for the ERTC. Greenway alleged that TRS marketed ERCS as a specialist in helping businesses qualify for and maximize the tax credit and others enacted by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136. TRS received a referral fee from ERCS, which, according to Greenway, incentivized TRS to “maximize total credit values rather than exercising caution when considering qualifications or a referral.”

ERCS provided Greenway an online intake questionnaire regarding its potential eligibility for the ERTC. Greenway alleged that the responses provided on the questionnaire were insufficient for determining a valid ERTC claim. Greenway further alleged that ERCS showed a pattern of inconsistency in describing the complexities of the ERTC and the surrounding Internal Revenue Code.

Nevertheless, Greenway entered into a contract with ERCS in September 2022 to file the necessary documents with the IRS to apply for the ERTC. Under this services agreement, to which TRS was not a party, Greenway agreed to pay ERCS 10% of the expected ERTC in exchange for filing the necessary documentation to claim the credit. The agreement also provided that if it were determined that no credit could reasonably be claimed or the IRS withheld claimed refunds, “no fee will be charged, and any deposits will be returned.” The agreement further stated that if the IRS “disqualifies all, or a portion of any credits after they are received by client, ERC Specialists shall not be required to return the fee charged for services provided.”

Based on the parties’ estimate of the ERTC amount, Greenway paid ERCS roughly $72,966 to file for the credit on its behalf. Greenway alleged that ERCS had not conducted a meaningful analysis of Greenway’s eligibility to receive the credit. Greenway also pointed out that its responses to ERCS’s questionnaire noted “no decline in gross revenue for any relevant quarters as well as no full suspension of business due to a government order during the COVID pandemic” (a full or partial suspension or specified decline in gross receipts must be met for a taxpayer to qualify as an “eligible employer” under Sec. 3134(c)(2)(A)(ii), among other requirements). Greenway asked ERCS for an explanation of how it qualified for the ERTC but did not receive one before signing the agreement with ERCS. Only after Greenway had signed the agreement did an ERCS representative show it a breakdown of how it purportedly qualified for the credit.

ERCS claimed the ERTC on Greenway’s behalf for quarters 2—4 of 2020 and quarters 1—3 of 2021 by filing amended Forms 941-X, Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund, which the IRS approved. Greenway received $729,657 in ERTC refunds from the IRS.

Greenway became suspicious that ERCS had misled it into believing it qualified for the credit. It subsequently met with a third-party consultant who determined that it did not qualify for the ERTC. Based on the consultant’s determination, Greenway applied for and was accepted into the VDP on Dec. 3, 2024. As a participant in the VDP, Greenway voluntarily agreed to pay back 80% of the ERTC it received, while keeping 20%, or $145,931, of the ERTC it had obtained. In return, the IRS agreed not to audit Greenway’s employment tax filings. Greenway had paid ERCS $72,966 to receive the $729,657 in ERTC. After returning 80% of the ERTC to the IRS for its concession not to audit its employment tax filings, Greenway netted $72,965, the difference between the 20% of the ERTC it had retained, minus ERCS’s 10% fee on the full amount of the ERTC it received.

Greenway filed suit in district court against ERCS and TRS, along with their representatives, for damages associated with the filing for and receipt of the ERTC.

Issues: The CARES Act created the ERTC to encourage businesses to keep employees on their payrolls during the COVID-19 pandemic. Subsequent legislation modified and extended the ERTC. Businesses at one time could retroactively make a claim with the IRS for the ERTC.

The defendants moved to dismiss Greenway’s complaint for lack of standing under Article III of the Constitution, claiming that Greenway had “not alleged a legally cognizable injury.” Under Article III, “federal courts do not adjudicate hypothetical or abstract disputes” (TransUnion LLC v. Ramirez, 594 U.S. 413 (2021)). Lack of standing is a jurisdictional issue to be raised under Federal Rule of Civil Procedure 12(b)(1) (VR Acquisitions, LLC v. Wasatch County, 853 F.3d 1142 (10th Cir. 2017)). To establish that a federal court has jurisdiction over an action, the party bringing the suit must establish standing (The Wilderness Society v. Kane County, 632 F.3d 1162 (10th Cir. 2011)). To establish standing, the plaintiff must show: (1) it suffered an injury in fact that is concrete, particularized, and actual or imminent; (2) the injury was likely caused by the defendant; and (3) the injury would likely be redressed by judicial relief (TransUnion LLC, 594 U.S. at 423). If the plaintiff “does not claim to have suffered an injury that the defendant caused and the court can remedy, there is no case or controversy for the federal court to resolve” (id.).

Certain harms, such as physical or monetary ones, qualify as concrete injuries under Article III (id. at 425). Article III standing requires a “concrete injury even in the context of a statutory violation” (Spokeo, Inc. v. Robbins, 578 U.S. 330, 341 (2016)). For purposes of standing, there is an important difference between “a plaintiff’s statutory cause of action to sue a defendant over the defendant’s violation of federal law” and “a plaintiff’s suffering concrete harm because of the defendant’s violation of federal law” (TransUnion, 594 U.S. at 426). An “injury in law is not an injury in fact” (id.). Therefore, the district court found that a party that sues to ensure compliance with a federal law to obtain money via the statutory damages provision is not seeking redress for any harm caused to that party, and thus, in that instance, Article III standing would not exist.

Greenway sought to obtain damages under the Racketeer Influenced and Corrupt Organizations (RICO) Act and other Utah statutes for the defendants’ alleged misrepresentations in relation to the ERTC application process. As the party bringing suit, Greenway had the burden to establish that it had standing. The district court determined that even if Greenway’s claims were valid, the company had not alleged an injury in fact because it did not allege a concrete injury that was actual or imminent.

Greenway claimed that it paid a significant amount of money to ERCS to assist it in filing for the ERTC. According to the district court, though, the money paid by Greenway to ERCS did not form the basis for an injury. The services agreement laid out the parties’ expectations and obligations, including Greenway’s promising to provide ERCS with correct information and that Greenway would not rely on ERCS’s representations about the tax credit. The agreement also stated that ERCS would not be liable for incidental or consequential damages. ERCS completed Forms 941-X, filed them with the IRS, and obtained the ERTC on Greenway’s behalf. The court noted that Greenway received a substantial amount of money from the ERTC, receiving the benefit it bargained for while suffering no penalties in the process.

Greenway also claimed to be injured because it was afraid the IRS would reassess whether it was actually eligible for the ERTC. The district court, however, found that this claim was addressed in the services agreement, which stated that if the IRS determined Greenway was not eligible for the ERTC, ERCS would still obtain the money Greenway had paid it to assist with the application. Under the agreement, ERCS was not required to return the fee it charged for its services if the IRS disqualified any credit.

In the court’s view, Greenway’s decision to return the money under the VDP program because it feared the credit would be disqualified was the same as if the credit had been disqualified. Greenway could not recoup the fee it paid in either situation because it made no allegation of any possible penalties or penalties it was trying to avoid, the court stated. Greenway did not allege that it was ever contacted by the IRS about reassessing its eligibility for the ERTC, that the IRS was trying to claw back the tax credit, or that the IRS issued penalties related to the credit and admitted that “it avoided all these hypothetically potential penalties.”

By participating in the VDP program, Greenway obtained several benefits, including having to pay back only 80% of the tax credit while not needing to repay interest the IRS may have paid on the ERTC refund claim, the district court found. Also, the IRS did not charge the company any penalties for repaying 80% of the ERTC, and it allowed Greenway to retain 20% for fees “it may have incurred in the filing for the credit through a service like ERCS.” Thus, the court found that with its participation in the VDP program, Greenway “still financially benefitted by retaining 10% of the total credit it received from ERCS’s services.” Greenway claimed it was harmed by a hypothetical or potential IRS audit or clawback, but, as the court observed, participation in the VDP generally protects the participant from an audit or clawback. This kind of “speculative harm is not concrete or imminent,” the court concluded.

Greenway also alleged that it was harmed when it engaged the third-party consultant to see if it qualified for the ERTC. Again, the district court found that these costs were covered in the services agreement, which stated that Greenway was “not relying on any of ERCS’s representations about eligibility.” Also, since these costs were in preparation for this case, the court determined that they were not “the type of injury that can provide standing.” If these types of costs were able to provide standing, the court stated (quoting Clapper v. Amnesty International USA, 568 U.S. 398 (2013)), “a party could always manufacture standing merely by inflicting harm on themselves.”

Holding: The district court concluded that Greenway suffered no concrete injury because, even if there was fraud or misrepresentation, Greenway ended up in a net positive position financially by obtaining money it alleged it was not entitled to receive. Because Greenway failed to demonstrate “an injury in fact based on Defendants’ alleged statutory violations,” the court held that the company had not established that it had standing. Without that standing, the court did not have the jurisdiction to hear Greenway’s RICO claim or exercise supplemental jurisdiction over its state-law claims. Consequently, it granted ERCS’s motion to dismiss.

• Greenway Equipment Sales, Inc. v. ERC Specialists, LLC, No. 2:24-cv-773 (D. Utah 10/8/25)

— John McKinley, CPA, CGMA, J.D., LL.M., and Thomas Godwin, CPA, CGMA, Ph.D., are both professors of the practice in accounting and taxation in the SC Johnson College of Business at Cornell University in Ithaca, N.Y. To comment on this column, contact Paul Bonner, the JofA‘s tax editor.