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In a major score for pandemic-era business relief seekers, Ostroff Injury Law PC has secured a favorable settlement in its $790,000 lawsuit against the Internal Revenue Service, which the firm accused of delaying payment of vital worker tax credits. The win comes amid an IRS backlog crisis that has left thousands of businesses in bureaucratic limbo.

The case was officially dismissed Friday by the U.S. District Court in Pennsylvania, following a confidential agreement between the IRS and Ostroff. Though specifics of the deal weren’t made public, firm attorney Nate Pollock of Southbank Legal described the outcome as “very favorable.”

A Clash Over Pandemic Promises

Ostroff's legal challenge, filed in August 2023, was born out of frustration shared by countless employers across the country: the IRS’s paralyzing delay in processing Employee Retention Credit (ERC) claims. These credits—created under the Coronavirus Aid, Relief and Economic Security (CARES) Act in 2020—were designed to incentivize businesses to keep staff on payroll during COVID-19 lockdowns.

The firm filed for the credits through amended returns about seven months prior to suing, but said it was stonewalled by the agency. The suit became part of a growing wave of litigation against the IRS, especially after it halted new ERC claim processing in September 2023, citing rampant fraud.

Then in June 2024, the agency doubled down on its moratorium—only to reverse course months later, saying it had developed tools to sift out legitimate claims from bogus ones.

The Numbers That Fueled the Fight

According to Ostroff’s complaint, the firm was financially walloped by the pandemic. It saw its gross receipts plunge from $5 million in Q3 2019 to just $1.7 million by Q3 2020, stagnating well into 2021. As a result, it claimed eligibility for over $790,000 in ERC refunds, more than $588,000 of which stemmed directly from its revenue losses.

On top of the refund, the law firm sought attorney fees and administrative costs associated with the drawn-out fight.

Nationwide Backlog, Mounting Pressure

Ostroff's suit hit the IRS at a time when pressure to clear the ERC pipeline had reached a boiling point. As of April 2024, National Taxpayer Advocate Erin Collins reported that over 597,000 ERC claims were still stuck in the IRS queue. Another 11,000 cases remained in limbo within the Taxpayer Advocate Service itself.

Although the ERC expired in 2021, its lingering impact continues to stir political and legal controversy as employers—especially small businesses—await much-needed relief.