IRS Notices for ERC Claims Disallowance

As the IRS continues to process Employee Retention Credit (ERC) claims, AAFCPAs would like to proactively advise clients about Notices of Claim Disallowance, Letters 105C or 106C, being issued to some taxpayers. In most of these cases, the IRS is simply seeking additional information or clarifying details about a claim. Not all taxpayers will receive these notices and, if you do, there is no need to panic or respond in haste. Take the time to carefully review the notice and provide the requested information. If AAFCPAs prepared your claim and you receive a disallowance notice, please contact us to discuss the next steps.

Understanding IRS ERC Notices

The IRS is reviewing a backlog of 1.4 million ERC claims, and it is estimated that 60-70 percent will result in letters requesting clarification or notifying taxpayers of adjustments. The most common notices include:

• Notice 105C: Indicates full disallowance of an ERC claim.
• Notice 106C: Indicates partial disallowance of the claim.

If you receive one of these notices, the IRS allows 30 days to respond. However, you have up to two years to file an appeal, during which time you may provide additional documentation to support your eligibility.

Another type of notice, 6577C, relates to previously paid ERC amounts. This is part of the IRS’ recapture program and provides a 21-day turnaround for response to avoid additional penalties or interest. Many of these letters are tied to discrepancies in employee counts reported on Form 941, which can affect how the credit is calculated.

It is worth noting that the IRS has acknowledged that some of these letters have been issued in error. If you receive a letter, it is important to take proper steps in responding to the IRS and filing an appeal to contend the disallowance of your claim.

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