Understanding the mechanics of an ERC buyout can help you navigate the process confidently and know what to expect at each stage. Let's break down exactly how these transactions work from start to finish.
Step 1: Initial Consultation and Qualification
The process begins when you reach out to an ERC buyout provider. During this initial stage, the company will ask basic questions about your ERC claim: the total refund amount, when you filed, and the current status with the IRS.
Most providers require that your ERC claim has already been filed with the IRS. Some may work with claims that are still in preparation, but the majority focus on filed claims that are simply awaiting processing.
Step 2: Documentation Submission
Once you decide to move forward, you’ll need to provide your complete ERC documentation package. This typically includes:
Your filed Form 941-X (amended quarterly payroll tax returns), supporting payroll records showing qualified wages, documentation proving your business met ERC eligibility requirements (such as government shutdown orders or significant revenue decline), and any correspondence you’ve received from the IRS regarding your claim.
The completeness of your documentation directly affects how quickly the process moves.
Missing documents can delay underwriting and approval.
Step 3: Underwriting and Compliance Review
This is where the buyout company does its due diligence. Their team will verify that your ERC claim was calculated correctly, ensure you met the eligibility requirements, check for potential IRS red flags or audit risks, and confirm there are no liens or other claims against your refund.
This review process typically takes 3-5 business days, though complex cases may take longer. The company is essentially assessing the risk of purchasing your receivable – they need confidence that the IRS will pay the claim as filed.
Step 4: Offer and Agreement
If your claim passes underwriting, you’ll receive a formal offer. This document outlines the purchase price (what percentage of your ERC value they’re offering), the payout structure (how much upfront vs. later), any fees or conditions, and the timeline for funding.
Read this agreement carefully and have your attorney or financial advisor review it. Make sure you understand exactly what you’re receiving and what you’re transferring.
You might find this article helpful for diving deeper into ERC Buyout Terms
Step 5: Contract Execution
Once you accept the offer, you’ll sign a purchase agreement. This legally transfers ownership of your ERC receivable to the buyout company. From this point forward, they own the right to receive your refund from the IRS.
The agreement should clearly state what happens in various scenarios – if the IRS adjusts your claim, delays payment, or requests additional information.
Step 6: Initial Funding
After the contracts are signed, the buyout company wires the initial payment to your business account. Most providers structure this as 70-85% of the purchase price paid upfront.
Timing varies by provider, but you can typically expect funding within 7-10 business days after contract execution, assuming all documentation was complete and accurate from the start.
Step 7: IRS Processing and Final Payment
Now the waiting game shifts to the buyout company. They monitor your claim with the IRS and handle any communications or requests for additional documentation.
When the IRS finally releases the refund, it goes directly to the buyout company since they now own the receivable. If the agreement includes a holdback amount (typically 10-15% of the purchase price), you’ll receive this final payment at this time, minus any adjustments the IRS made to your original claim amount.
What About IRS Adjustments?
This is an important consideration. If the IRS reduces your refund amount during processing, the impact depends on your purchase agreement terms. Some agreements put this risk entirely on the buyout company, while others may require you to repay a portion if the claim is significantly reduced.
Timeline Expectations
From initial contact to receiving your upfront payment, the process typically takes 2-3 weeks for straightforward cases. The IRS processing timeline remains unchanged – they’ll still take 6-18 months to issue the refund to the buyout company.
Managing the Process Smoothly
The key to a smooth buyout experience is preparation. Have all your documentation organized and readily available, respond quickly to any requests for additional information, work with reputable providers who are transparent about their process, and maintain copies of everything for your records.
Understanding each step helps you evaluate whether an ERC buyout aligns with your business needs and cash flow timeline.
Still have a few questions in mind? Ask our ERC Buyout team and learn more about our offerings. Call us at 941-451-5634