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  • Brittany Besler

Will you get one of the 20,000 letters from the IRS denying your ERC claim?

The Internal Revenue Service (IRS) announced that more than 20,000 letters would go out this week to inform Taxpayers of a disallowed claim. The IRS has also stated that this is simply the first round and it is focused on entities that did not exist or did not have employees during the period of eligibility. This letter will be in the form of a Letter 105 C, Claim disallowed, an example of which can be seen here.

These letters are being sent as part of the IRS’s continues increased scrutiny of what they see as widespread fraud in the market. This also follows the IRS’s announcement on September 14th introducing a moratorium, through at least the end of 2023, which you can read about here. As part of the announcement the IRS reminded again of the withdrawal option for entities that have pending claims that they realize may be inaccurate, more information is also contained at the above link.

This announcement also marks the first official announcement of a voluntary disclosure program, which the IRS has stated will be unveiled later in December. A voluntary disclosure program is meant generally for taxpayers who inadvertently, or unknowingly, were misled in regard to claiming this credit. If you have questions or would like a review of your claim, contact us today to review the underlying claim and your options moving forward. While the details of the voluntary disclosure project are unknown, there are a lot of steps that can be taken in preparation for one. Tax professionals, such as Besler Law, who are familiar with voluntary disclosure programs are well suited to help your organization through a program.

The IRS further took the opportunity to again raise concerns of aggressive marketing and reinforce its

work of the audit and criminal investigation teams. The IRS again urges people to work with a trusted

tax professional and review the options which may involve a withdraw or a future voluntary disclosure.

The IRS noted that enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.

The mailing reflects just part of the ongoing IRS review of these claims. In this group, two categories of claims have been identified and are being disallowed:

  • Entity not in existence during period of eligibility: The ERC applies to qualified wages for between March 13, 2020, and Dec. 31, 2021. Entities established after Dec. 31, 2021 are not entitled to the ERC under the law passed by Congress.

  • There are no paid employees during the period of eligibility: The ERC is intended as a credit against qualified wages paid. Entities that did not pay any wages are not eligible for ERC.

It is important to note that you should read your notice carefully should you get one. As with any of the automated notices, it is possible that legitimate claims also receive the notice. It is also possible there was a defect in the filing or paperwork that caused your organization to receive the notice. Therefore, if you disagree with the notice you should respond immediately with the documentation to support the claim, or file an administrative appeal.

As always with tax credits it is important to work with a trusted advisor to review the qualifications of

the credit as well as proper calculation of it. Contact Besler Law today if you would like to review with you your options

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