Received An IRS Letter 105-C Disallowing Your ERC Claim? What To Do Next

Receiving IRS Letter 105C constitutes a formal disallowance of your Employee Retention Credit claim and places your business under immediate federal scrutiny. The Internal Revenue Service is currently issuing these denials at an unprecedented rate to address the extensive backlog of high-risk submissions.

If you have received this notice, you must understand that a summary denial is not necessarily the final determination. You should act decisively with the help of experienced tax controversy attorneys. The following guidance outlines the necessary protocols and statutory requirements to challenge an

adverse IRS determination.

Challenging an IRS Letter 105C Disallowance

Your immediate priority is to stop the administrative clock and build a factual record that can survive an appellate review. Taxpayers possess a statutory right to contest an adverse IRS determination, but preserving that right requires strict adherence to the following procedural requirements.

• The 30 Day Administrative Review: The IRS generally requests a response within 30 days to move your case to the Independent Office of Appeals. Prioritizing this window is a strategic advantage. It demonstrates your intent to resolve the matter administratively and keeps your case moving toward a resolution without the immediate need for litigation.
• The Two-Year Statutory Protection: Under IRC Section 6532, you have a two-year window from the date of the letter to protect your right to the credit in federal court. By monitoring this deadline closely, you ensure that your right to the funds remains intact regardless of how long the administrative process takes.
• Developing a Targeted Response: Success in overturning a disallowance depends on moving beyond generic documentation. The IRS is currently looking for a specific legal nexus between a government mandate and your operations. A successful response identifies the exact executive orders that impacted your business and supports that claim with clear, granular data.

3 Common Mistakes When Disputing Letter 105-C

When taxpayers attempt to contest a Letter 105C on their own, they often overlook critical procedural requirements. These oversights can result in the permanent loss of the credit regardless of the underlying merits of the claim.

• Misinterpreting the Statute of Limitation: Your right to file a refund suit in federal court is governed by a strict statutory clock that continues to run even while your case is pending before the Independent Office of Appeals.
• Reliance on Non-Qualifying Guidelines: Submitting general CDC recommendations or OSHA safety guidelines is insufficient to overturn a disallowance. Your evidence must identify a specific government order that exerted a direct and more than nominal impact on your business operations.
• Failure to Apply Aggregation Rules: The IRS requires a comprehensive analysis of all commonly owned entities under IRC Section 52. Failing to account for these complex ownership structures is a primary driver of ERC claim denials.

Once your response is submitted, your case will proceed through a defined administrative sequence with distinct outcomes at each stage.

• IRS Review: An examiner will evaluate your newly submitted evidence and legal arguments against the basis for the original disallowance.
• Case Forwarded to Appeals (Letter 86-C): If the examiner upholds the disallowance and you have properly requested an appeal, your file will be transferred to the IRS Independent Office of Appeals. You will receive Letter 86-C confirming that transfer.
• Denial Stands (Letter 916-C): If no appeal was requested, or if the Independent Office of Appeals sustains the disallowance, you will receive Letter 916-C. At that stage, federal litigation becomes your remaining avenue for relief.

Assess Your Options with Silver Law PLC

If your claim was handled by a high-pressure marketing firm or involves complex aggregation rules, an objective evaluation is essential to identify your best path forward. At Silver Law PLC, our experience as former IRS trial counsel allows us to review your disallowance from the perspective of the government. We focus on identifying the specific strengths of your claim and managing the strict timelines that protect your right to a review. Contact our team today for a confidential consultation to review your notice and determine the most appropriate next steps for your business.