IRS Overreach In Action With Leighanne Lafrenz Nickle

In this episode of the Tax Rep Network Podcast, Eric Green is joined by Leighanne Lafrenz Nickle, CPA, for a lively discussion on ERC claims, IRS due diligence audits, preparer penalties, and the growing problem of IRS overreach. Drawing from real cases and frontline experience, they break down what tax professionals need to know about refund deadlines, documentation, aggressive auditors, and why strong representation matters more than ever. If you handle tax controversy work, this episode is packed with practical insight you can use right now.

Want to contact Leighanne? Email her at: leighanne@lafrenznicklecpa.com.

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IRS Overreach, ERC Chaos, and What Tax Pros Need to Know Now

The IRS is turning up the heat—and for tax professionals navigating Employee Retention Credit (ERC) claims and preparer audits, the landscape is becoming increasingly complex and aggressive. In a recent discussion, seasoned tax professionals unpacked what’s really happening behind the scenes, and why many believe the IRS has crossed the line from enforcement into overreach.

The ERC: From Relief to Risk

Originally designed as a lifeline during COVID-19, the ERC was meant to incentivize businesses to keep employees on payroll. It offered substantial refundable credits—up to $5,000 per employee in 2020 and $7,000 per employee per quarter in 2021. Eligibility hinged on either a significant drop in gross receipts or being impacted by government shutdown orders.

But now, years later, the IRS is aggressively auditing these claims. Thousands of businesses are receiving denial letters (Letter 105(c)), often with little room for negotiation. Taxpayers have just 30 days to request an appeal—and critically, only two years from the denial date to file a lawsuit. Miss that window, and the claim is lost forever.

The Shutdown Debate: A Legal Battleground

One of the biggest areas of contention is what qualifies as a “government shutdown.” The IRS has taken a narrow view, relying heavily on Notice 2021-20, which states that only explicit federal or state shutdown orders count. Guidance from agencies like OSHA or the CDC? According to the IRS, those don’t qualify.

That position is now being challenged in court. A key case—Carrolton of Dunn v. United States—argues that businesses were materially impacted by COVID-related restrictions even if they were technically allowed to remain open. For example, staffing shortages, social distancing requirements, and operational disruptions had real economic consequences.

Adding fuel to the fire: Notice 2021-20 was never subjected to the formal rulemaking process required under the Administrative Procedure Act. That raises serious questions about whether courts should give it any deference at all.

Audit Tactics and Preparer Pressure

Beyond ERC claims, the IRS is also ramping up preparer due diligence audits—particularly around refundable credits like the Earned Income Tax Credit and Child Tax Credit. These audits can be intense, with agents requesting extensive documentation and penalizing even minor recordkeeping gaps.

In some cases, the IRS is comparing the number of returns filed under a preparer’s EFIN and PTIN to reported gross receipts—essentially questioning whether the preparer is charging “enough” and implying unreported income. Many practitioners see this as a troubling expansion of IRS authority into business judgment.

The Cost of Doing Nothing

A recurring theme is the danger of inaction. Whether it’s failing to appeal an ERC denial or simply paying a preparer penalty to “make it go away,” these decisions can have long-term consequences. The IRS often interprets payment as an admission of wrongdoing—making future audits more likely and more aggressive.

Even worse, statutory deadlines are unforgiving. As highlighted in the discussion, missing a two-year window to file a refund suit—even on a multimillion-dollar claim—can permanently bar recovery, no matter how strong the case.

Final Takeaway

We’re entering a new era of IRS enforcement—one where technical compliance isn’t enough. Documentation, strategy, and timely action are critical. For tax professionals, this is both a challenge and an opportunity: those who understand the rules, push back when appropriate, and advocate effectively for their clients will stand out.

Because in today’s environment, it’s not just about preparing returns—it’s about defending them.

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About Leighanne Lafrenz-Nickle

Ms. Nickle is a California-licensed CPA with a forensic accounting and tax practice in Rancho Cucamonga, California. Leighanne has over 20 years of experience working in both public accounting and private industry. Ms. Nickle owns and operates a California CPA firm, where the focus of her practice is representing taxpayers before the Internal Revenue Service, California Franchise Tax Board, the California Department of Tax and Fee (CDTFA), the California Employment Development Department (EDD), and California Child Support offices in Orange County, CA. In addition, she has served as an expert witness for civil and criminal court proceedings regarding forensic accounting, tax, payroll issues, and child support payments.

Ms. Nickle also serves on the Committee on Tax (COT) with CalCPA (California CPA). As a member of the COT, she works directly with the California Franchise Tax Board (FTB) on tax matters and acts as a liaison between the local and state chapters and the California Franchise Tax Board. She is also a Speaker/Trainer for Tax Rep Network, LLC, where she speaks on and trains other tax professionals on IRS tax representation methods and strategies.