ERC Refund Intercepted by an MCA Funder: Can They Do That?

Can they grab my ERC refund? In theory, a lender can keep the ERC funds through a UCC lien on deposit accounts or by having a judgment that freezes the bank account where the refund lands. However, it’s unlikely for the lender to be able to directly grab the refund from the IRS.

An MCA is usually described as the purchase of future receivables, not a loan. Yet almost every agreement includes the authorization for the funding company to file a Uniform Commercial Code lien against receivables and deposit accounts, and many of them take a blanket lien on all business assets. Don’t be confused by the legal phrase “general intangibles”, either. The UCC defines general intangibles to include payment intangibles--rights to be paid money. An ERC refund is itself a right to be paid money. A lien also attaches to identifiable proceeds of collateral, such as money deposited in a bank account. Once an ERC refund lands in the business checking account, the cash can be proceeds.

But there’s an extra hurdle to someone grabbing a refund at the IRS: federal law. It’s called the Anti-Assignment Act. The Anti-Assignment Act says that assignments of claims against the United States are not valid unless and until “allowed, the amount decided, and a warrant for payment issued.” Once the refund is allowed and the amount is set by the IRS, the assignment then needs two witnesses to be effective.

This law is meant to ensure that the government only has to deal with one claimant, not a bunch of them fighting over who gets paid. But the act protects the government more than it protects private parties. Courts decide to what extent this law applies, and who may enforce it is limited. Under IRS Form 2848 instructions, a representative can’t endorse or cash a government tax check or have it deposited into an account it controls.

To garnish a bank account or freeze it, the funder generally needs a money judgment in the right state. Each state has its own laws for freezing bank accounts. Judgments come from several different avenues, not all of them involving the formal courtroom setting. A confession of judgment often is part of a lending agreement and lets the lender obtain a judgment without the debtor getting a chance to be heard. Then there are cases where the debtor doesn’t show up to court, with court entering a default judgment. And finally, an arbitration award can be converted into a judgment as well. In New York, an attorney’s restraining notice can freeze up to twice the amount due for up to one year, or until the judgment is paid or vacated. While you may be in Florida or Texas, New York’s laws and courts can govern a financing agreement.

Confession of judgment is a powerful weapon for a lender, but not an all-powerful one. Since 2019, New York law bars any confession of judgment from being filed in New York against a business outside the state. In Texas, confessions of judgment are now void in covered sales-based financing, and the change is effective September 1, 2025.

It’s not just funders who might grab a refund. The IRS says that any tax refund, including ERC, will be reduced by any past-due debt owed to federal agencies. Separately, a 2025 law barred claims for Q3 and Q4 2021 filed after Jan. 31, 2024. However, the law says that refunds paid before July 4, 2025 stand.

A Basis to Fight Back

Sued for nonpayment of an MCA? You could have a basis to fight back. Whether an MCA is truly a disguised loan depends on how the agreement works in practice and how the courts look at it. Courts look to see whether the funding party bears the risk of nonpayment, to whether payments are subject to reconciliation, to whether there’s a fixed term, and to whether the funder has recourse. If it’s found to be a loan, and exceeds the legal interest rate for loans, the agreement could be void in its entirety. Of course, a lot of MCAs have been found not to be loans.

Filing a bankruptcy petition usually stops debt collection cold. That’s the automatic stay. Generally, filing bankruptcy stops a creditor’s pre-filing lien from reaching property that you acquire after you file. With a personal guaranty, the lender could try to make a claim against the signer personally.

Many disputes with funders are resolved by negotiation. You can ask for reduced payoffs, restructured terms, and for your UCC lien to be released. Getting any offer reviewed before you answer is a must, as they can be structured to put you under pressure to take a bad deal.

So what should you do now? First, don’t ignore any legal papers. A default judgment is harder to undo than the original claim. Falsely telling your bank that authorized debits were unauthorized can backfire and land you in legal hot water. Don’t try to move assets, or open new entities to avoid a creditor.

Before your refund arrives, you should gather copies of all MCA agreements, bank statements, and letters from the funder. See if there’s a confession of judgment or an arbitration clause. Don’t agree to anything new. Then get an attorney experienced with MCAs and their associated issues, before deadlines to act have passed.