ERC Disallowance Notices
Received an IRS notice denying your Employee Retention Credit claim? Don’t give up.
Many legitimate ERC claims are initially denied due to documentation issues or IRS processing errors. Professional representation can help you fight for the credits you rightfully earned.
For comprehensive ERC information, visit our dedicated website: ERCAuditTaxAttorneys.com
Understanding ERC Disallowance Notices
Immediate Action Required
ERC disallowance notices typically give you only 30 days to respond. Missing this deadline can permanently forfeit your right to the credit, even if your original claim was completely valid.
Types of ERC Disallowance Notices
- CP 263 Notice – Your tax credit claim was rejected (partially or completely)
- Letter 6419 – The IRS needs more paperwork from you
- Letter 105C – Final warning before your claim gets denied
- Audit Notices – Full investigation of your tax credit claim
From the date of the notice to file your response
Common Reasons for ERC Disallowance
Understanding why the IRS denied your claim is crucial for crafting an effective response. Most denials fall into several common categories:
PPP Loan Issues
You used money from a forgiven PPP loan to pay your employees, so you can’t also claim the tax credit for those same wages
Full Suspension Documentation
You didn’t provide enough proof that government orders actually forced you to close or reduce your business operations
Significant Decline Test
The IRS disagrees with how you calculated whether your sales dropped enough to qualify (they think your math is off)
Related Group Issues
Problems figuring out if multiple related businesses should be counted together or separately for the credit
Wage Calculations
Mistakes in calculating which employee wages qualify, health insurance costs, or how many employees you had
Documentation Deficiencies
You didn’t send enough documents to prove you actually qualified for the credit
Government Order Challenges
Many denials relate to the IRS’s interpretation of whether government orders constituted a “full or partial suspension” of business operations. The IRS has taken increasingly narrow positions on:
Essential Business Status
IRS may claim essential businesses weren’t truly suspended.
Partial Suspensions
Disputes over whether capacity restrictions or operational changes qualify.
Supply Chain Disruptions
IRS challenges to suspension claims based on supplier impacts.
Nominal Impact Argument
IRS position that minor operational changes don’t qualify.
Fighting Your ERC Disallowance
A disallowance notice is not the end of the road. With proper representation and documentation, many denied claims can be successfully appealed or resolved through administrative procedures.
Submit detailed response within
30-day deadline
Request conference with IRS examiner
Gather additional supporting evidence
Organize records to address
specific IRS concerns
Appeal Rights
If the IRS upholds the disallowance after your initial response, you have the right to appeal to the IRS Appeals Office for independent review of your case.
IRS Appeals Office
Independent administrative review by IRS Appeals for ERC disallowance cases.
Fresh Perspective
Appeals officers are independent from the examining function and can consider settlement.
Conference Rights
Opportunity to present your case directly to Appeals and negotiate resolution.
Settlement Authority
Appeals has authority to resolve cases based on litigation hazards and administrative efficiency.
Building Your Defense Strategy
Successfully challenging an ERC disallowance requires a comprehensive approach that addresses both the legal and factual issues in your case.
Documentation Strategy
Government orders and their specific impacts on your business
Detailed operational changes and capacity restrictions
Quarterly revenue calculations and comparisons
PPP loan documentation and wage reconciliations
Payroll records and qualified wage calculations
Health plan cost documentation
Business records showing operational impacts
Industry guidance and compliance documentation
Legal Arguments Framework
Your response should address the specific legal standards for ERC eligibility and challenge the IRS’s interpretation where appropriate:
Statutory Interpretation
Cite legislative history and congressional intent behind ERC provisions.
Regulatory Guidance
Reference favorable IRS guidance, FAQs, and published positions.
Case Law
Utilize court decisions and precedents supporting your position.
Factual Development
Present clear timeline of events and business impacts.
Consequences of Disallowance
Understanding what happens if your ERC claim is ultimately disallowed is important for making informed decisions about how aggressively to fight the denial.
Repayment and Penalties
If the disallowance is upheld, you’ll be required to repay the ERC amounts plus interest. The IRS may also assert penalties for substantial understatement of tax or other violations.
Financial Impact
Principal Repayment
Full amount of disallowed ERC must be repaid.
Interest Charges
Interest accrues from the date the credit was originally claimed.
Potential Penalties
20% penalty for substantial understatement or other violations.
Tax Liability Adjustments
Income tax consequences if wages were previously deducted.
Settlement Opportunities
Even in challenging cases, there may be opportunities to negotiate partial settlements or resolve disputes for less than the full disallowed amount.
Why Professional Representation is Essential
ERC disallowance cases involve complex technical issues, tight deadlines, and high financial stakes. Professional representation significantly improves your chances of a successful outcome.
Our ERC Defense Services
Immediate Response
Rapid analysis of disallowance notice and timely filing of response.
Case Development
Comprehensive review of records and development of defense strategy.
IRS Negotiations
Direct communication with IRS examiners and appeals officers.
Litigation Support
Preparation for Tax Court or federal court proceedings if necessary.
Experience You Can Trust
We understand the ERC program’s complexities and the IRS’s evolving enforcement positions. Our experience handling ERC disallowances allows us to quickly identify the strongest arguments for your case and develop effective strategies for challenging improper denials.
We are licensed to practice in Maryland and the District of Columbia. For matters in other jurisdictions, we will engage with qualified local counsel to facilitate representation.
Don’t let the IRS take away credits you rightfully earned. Time is critical – contact us immediately if you’ve received an ERC disallowance notice.