ERC Disallowance Letters 105C Sent to Taxpayers

The IRS has notified over 20,000 taxpayers via IRS Letter 105C (Disallowance of Claim) that their claims for the employee retention credit are being disallowed because entities either did not exist or did not have paid employees during the period of eligibility for the pandemic-era credit.

The mailing reflects only part of the IRS’s ongoing review of ERC claims. Within this group, two categories of claims have been identified and are being disallowed:

  • Entity not in existence during the period of eligibility: The ERC applies to qualified wages for periods between March 13, 2020, and Dec. 31, 2021. Entities established after Dec. 31, 2021, are not entitled to the ERC under the law passed by Congress.
  • There are no paid employees during the eligibility period: The ERC is intended as a credit against qualified wages paid. Entities that did not pay any wages are not eligible for ERC.

The Letters 105C aims to help ineligible taxpayers avoid audits, repayment, penalties, and interest, protect taxpayers by preventing an incorrect refund from going to an ERC promoter, and save IRS resources by disallowing incorrect credits before they enter the audit process.

The IRS plans to send additional letters beyond the disallowance letters. It’s also finalizing plans for a special voluntary disclosure program involving ERC claims that will be announced later this month.

The letters are one part of a wide-ranging IRS campaign to curb ERC abuse that the Service blames on misleading marketing campaigns. In September, the IRS announced a moratorium on processing new claims, effective through at least the end of 2023. At that time, the IRS had received 3.6 million ERC claims, and of the 600,000 (15%) then unprocessed by the IRS, virtually all were filed in the 90 days prior to the moratorium.

The disallowance letter will explain that a taxpayer who disagrees with the disallowance can respond with documentation supporting their eligibility or claim amount or file an administrative appeal. Our law firm is assisting taxpayers in defending ERC audits or appeal disallowed ERC claims.

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