The IRS has announced a significant development regarding the Employee Retention Credit (ERC). If you or your business filed an ERC claim, you may receive a disallowance notice or a request for repayment. The IRS is issuing these notices automatically or based on a preliminary calculation that may not fully account for the complexities of the program’s rules. With 840,000 to 980,000 notices expected to be sent in the coming months, here’s what you need to know.

What’s Happening?

The IRS initially projected the ERC program to pay out $77 billion; however, over $230 billion has already been distributed. Additionally, 1.4 million claims remain pending. Of these, 60–70% are expected to receive additional scrutiny or notices.

Using time during the recent moratorium, the IRS digitized its ERC claims process and is now sending automated disallowance notices, including:

  • Notice 105C
  • Notice 106C
  • Notice 6577

Expect waves of 30,000 to 40,000 disallowance notices every 4–8 weeks, affecting both partial and full claims. These notices require swift action as response deadlines are often short—ranging from 15 days to a few weeks.

IRS Investigations and Audits

The IRS is also conducting extensive reviews and investigations. Key updates include:

  • Over 200,000 claims are under review for suspected fraud.
  • Approximately 500 cases have already escalated to criminal charges.

Taxpayers who believe their claims were unfairly disallowed may file an amended return or formally contest the notice.

How to Respond

If you receive a disallowance notice, here’s what you should do:

  1. Act Quickly: Review the notice and the deadlines for response. Delays can limit your options for resolution.
  2. Gather Documentation: Ensure you have all necessary records to support your ERC claim.
  3. Seek Professional Assistance: We are here to help review your notice, determine the best course of action, and develop a plan for addressing any disallowance.

Protect Yourself from Predatory Practices

Many taxpayers were misled by predatory ERC preparation companies that collected fees for erroneous claims and subsequently disappeared. If you were affected, you may consider pursuing legal action against these preparers to recoup fees. We have trusted legal referrals available for clients who wish to explore this option.

We’re Here to Help

If you have received an IRS disallowance notice or need assistance with your ERC claim, please don’t hesitate to contact us. Our team is prepared to guide you through this complex process and ensure you have the resources needed to respond effectively.

Remember, acting quickly and strategically is critical. Reach out to us today to get started.