ERC Claims Processing Resumes Amid Disallowance Notices: What Your Business Should Know

The Employee Retention Credit (ERC) has been a crucial tax relief measure for businesses impacted by the pandemic, offering significant credits for keeping employees on payroll during periods of economic hardship. However, many businesses have been left in limbo as the IRS paused processing ERC claims due to a backlog. As of late July, the IRS has resumed processing claims, offering some relief to businesses awaiting their credits. This resumption allows businesses to finally receive their ERC refunds, but it comes with heightened scrutiny from the IRS.

For months, businesses were left in limbo as the IRS focused on other priorities, creating a backlog of ERC claims. The resumption of claim processing signals that businesses may soon receive the credits or refunds they have been counting on. This could be a vital source of cash flow, allowing businesses to reinvest in operations, hire new staff, or stabilize financially after the challenges of the past few years. With billions of dollars in potential credits on the line, the IRS moving forward with claims processing represents a major step toward relief for eligible businesses.

However, businesses should be aware that, alongside processing claims, the IRS is now issuing disallowance notices, specifically Letters 105C and 106C. These notices signal that some businesses may face partial or full disallowance of their ERC claims. Letter 105C is used to notify businesses that their claim has been entirely disallowed, often due to questions about eligibility or insufficient documentation. Letter 106C, on the other hand, indicates that only part of the credit is being disallowed, usually due to errors in calculation or in the claimed amount.

For businesses that used a reputable tax advisory firm, the ERC eligibility was likely meticulously analyzed, and your claim was filed in accordance with IRS guidelines. Inaccurate disallowance notices should be carefully scrutinized and, if necessary, challenged. Many disallowances can be successfully appealed, especially when the credit was filed based on the significant decline in gross receipts test. Businesses should review their notice alongside their tax advisor to determine if an appeal is warranted, as these inaccuracies are becoming increasingly common.

Businesses are entitled to appeal these decisions, but appeals must be timely and well-documented to stand a chance. It’s vital to take quick action, as any delay could impact your ability to recover the credit. At Strategic Tax Planning, we specialize in high-value tax credits like the ERC. Our team can help you evaluate the IRS’s decision, determine the best course of action, and assist you with the appeals process if necessary. The stakes are high, and we are here to guide you through every step.