Responding To IRS Form 105C Denying Your ERC Claim - A How-To Guide

I’m hearing from multiple taxpayers every day who receive canned disallowance letters from the IRS in response to ERC claims. Today’s post will provide a sample response for some of the most common canned disallowance letters from the IRS. The most common letter I am seeing that the IRS is sending to taxpayers is IRS Letter 105C, which states that the taxpayer did not respond to an IRS request for information. It looks like this:

Portion of IRS Letter 105C

Guinevere Moore

Taxpayers receive this letter in two different scenarios: (1) when they never received any correspondence from the IRS at all requesting information, or (2) when they received correspondence, responded to it by the deadline, but the IRS claims that the taxpayer did not respond. IRS letter 6612 is the letter that alerts the taxpayer they have been selected for examination and encloses an Information Document Request. As I’ve written about before, responding on time to an Information Document Request is necessary to sustain any claim for a refund or credit, and the ERC is no different.

How to Respond to 105C

Disallowance for Failure to Respond

Sent via [mailing method - always include this in all correspondence to the IRS, and importantly, send your correspondence in a way that can be tracked. Someday you may need to prove you mailed a letter on time. Putting a stamp on an envelope won’t cut it.]

Department of the Treasury

Internal Revenue Service

Revenue Agent [insert agent name]

[insert agent address]

Re: Taxpayer: [taxpayer name]

Taxpayer ID: [XX-XXXXXX]

Tax Period(s): [quarter and year]

Notice of Disallowance, [form number]

Dear Agent [name],

We are in receipt of the Notice of [Partial] Disallowance, [form number], issued by the IRS on [date] regarding [client’s] claim for the Employee Retention Credit (“ERC”) for the above-referenced quarters. A copy of the Notice is attached as Exhibit A.

According to the Notice, the IRS issued an Information Document Request (“IDR”) to [client], but the IRS did not receive a response. However, [taxpayer] did respond to the IDR by letter dated []. [IF APPLICABLE: A copy of the proof of mailing is attached as Exhibit B.] The response itself is reattached here as Exhibit [B/C].

IF TRUE, OPTION A: The information and documents provided show that [taxpayer] is entitled to the credits it claimed on its Form(s) 941-X for the above-referenced quarters. In light of these documents, we respectfully request that you rescind the Notice of [Partial] Disallowance issued on [date], and, if you still deem it necessary, revise and reissue a Notice that discusses the full factual basis for the credits claimed, including the documents provided with this letter, and the IRS’s reasons for disallowing the claim.

OPTION B - to be used if initial response did not contain substantiation for the claim

As I’ve previously written, the IRS requires significant evidence to substantiate a claim for the ERC, including evidence of partial suspension if government orders forms the basis of the claim, evidence of impacts on the business from government orders, evidence of how the credit was calculated, etc. Some companies may have responded to an initial notice without all of the substantiation required. If that is the case, instead of the paragraph above, the company should state that the evidence is being included in the current response, or that it is forthcoming in 15 days.

Example:

The information and documents [provided herein] OR [will be provided in 15 days] show that [taxpayer] is entitled to the credits it claimed on its Form(s) 941-X for the above-referenced quarters. In light of these documents, we respectfully request that you rescind the Notice of [Partial] Disallowance issued on [date].

Disallowance for Insufficient Response

Notice of disallowance for providing insufficient documents are also very common. Taxpayers who receive this notice did provide some response to the IRS, but the IRS did not deem that response sufficient to allow the ERC claim. While frustrating, there is an opportunity to provide additional information and appeal.

For this letter, check back and carefully read my prior article about what the IRS will need to approve your claim. The most important rule of thumb: if you think you sent everything you needed and the IRS rejected your claim, you did not send everything you needed. You will need to think again about what you have and send in more. Here’s a sample response:

Dear Agent [name],

We are in receipt of the Notice of [Partial] Disallowance, [form number], issued by the IRS on [date] regarding [client’s] claim for the Employee Retention Credit (“ERC”) for the above-referenced quarters. A copy of the Notice is attached as Exhibit A.

According to the Notice, [client] did not produce sufficient information and documents to show that they are entitled to the ERC. The Information Document Request (“IDR”) issued by the IRS and [client’s] response is attached as Exhibit B.

The information and documents provided show that [client] is entitled to the credits it claimed on its Form(s) 941-X for the above-referenced quarters. We are also enclosing additional documents, [describe what they are], to further support the claim. In light of these documents, we respectfully request that you rescind the Notice of [Partial] Disallowance issued on [date].

* * *

As always, the best way to approach any dispute with the IRS is with the help of your trusted advisor. These letters provide a guide but are not a substitute for solid advice of a tax professional.

These are the most common disallowance letters I am seeing. Is there a different kind of letter you would like to see a sample response for? Let me know in the comments.