The Internal Revenue Service (IRS) has recently issued approximately 100,000 Letter 105C notices, denying Employee Retention Credit (ERC) claims. This move is the first salvo from the IRS in delivering on its promise last month to aggressively crack down on ERC claims it finds to be erroneous.

The volume of ERC claims, many facilitated by questionable providers and pop-up services, prompted the IRS to implement more stringent verification measures. While this approach was intended to safeguard the integrity of the program, it has inadvertently created a bottleneck for many businesses awaiting much-needed relief.

Decoding Letter 105C

The 105C letters serve as a formal notification that the IRS has rejected a credit or refund claim. According to the 105C letters, the taxpayer can file a suit against the IRS if they disagree. This is the only remedy described, but what the IRS has not explained is that there are other remediation options available. There is an option to resolve the claim without filing suit with the IRS but it must be filed within 30 days of receipt of the letter. It is critical if you or a client has received a 105C, that you immediately discuss with expert tax counsel.

Technological Advancements in IRS Review Processes

IRS efforts to digitize ERC claims and match them against the Service’s advanced analytics could mean systemic detection programs determined your claim is questionable.  While this will help IRS review greater and greater numbers of pending claims, systems aren’t perfect and could incorrectly conclude your ERC claim is invalid.

Critical Considerations for Businesses

1. Appeal Rights: It is crucial to note that businesses have the right to appeal the IRS decision, a fact not explicitly stated in the notice itself. This omission highlights the importance of businesses being fully informed of their options.
2. Time-Sensitive Response: Recipients of Letter 105C must respond within 30 days of the IRS decision. This narrow window emphasizes the need for prompt action to preserve the right to contest the denial.
3. Expert Evaluation: Given the intricacies of ERC qualifications and the potential for erroneous denials, it is imperative for businesses to seek review from qualified tax professionals or legal counsel.
   
   

Expert Support and The Path Forward

The recent wave of ERC claim denials highlights the challenges businesses face in securing intended relief, but with the right support, this process can be navigated smoothly. Even if you have not received a 105C, but you have not received your refund, it is critical you connect with expert tax counsel to avoid the next round of letters. At alliantNational, Our team of experts, including fiver former IRS commissioners, bring decades of experience to simplify this complex landscape for you. We handle every aspect of the process, from immediate response to strategic appeals, ensuring compliance and maximizing your chances of a favorable outcome.