Tax Blog

1.  I filed my ERC refund claim many years ago but have never heard from the IRS, what do I do?

You should start by obtaining your IRS transcript.  The transcript will help you confirm that the IRS received your claim, and whether you might have missed correspondence from the IRS about it.  Once you have confirmed that the IRS has your claim but has taken no action, you can contact the Taxpayer Advocate Service or your Congressman to facilitate pushing your claim forward. The Taxpayer Advocate Service is an independent organization within the IRS that assigns advocates to Taxpayers.

2.  The IRS is actively auditing my ERC claim – what do I do?

You should organize documents that will substantiate your ERC claim. The IRS will likely request supporting documents during the audit and ready organization will help streamline the process. Common documents Taxpayers typically need to provide during an audit include those that support eligibility, which is usually based on a decline in gross receipts or a partial suspension of the business due to a government order issued in response to the pandemic.  For gross receipts cases, taxpayers will typically want quarterly financial information from 2019 and the ERC claim year.  For governmental order cases, taxpayers will want to identify orders that were in effect during the ERC quarter in question and an explanation on how that order impacted their business.  Other documentation includes evidence supporting the average number of full-time employees and Paycheck Protection Program (“PPP”) loan related documentation (if applicable).

3.  The Revenue Agent disallowed my ERC claim – what’s next?

Notice of claim disallowance is typically issued to Taxpayers through a 105C Letter. Once Taxpayers receive this Notice, they can either accept the changes, submit a protest to the Independent Office of Appeals, or file a suit for refund. Protesting the Revenue Agent’s decision to the Office of Appeals requires a written statement with facts of your case, a statement of intent to appeal, and evidence supporting the ERC claim.  When filing your protest, its best to be as specific as possible.  Consider attaching any and all needed exhibits (such as governmental orders, financial information, etc.) to your protest to help bolster your case.  It is possible that the IRS will grant the refund based on the mere filing of the Protest, without requiring you to present your case to the Office of Appeals.  Filing a refund suit will be discussed in more detail below.

4.  The IRS is trying to recapture ERC funds previously paid to me – what do I do?

If the IRS is trying to recapture funds previously paid, you can challenge the recapture by paying some or all of the disputed amount, filing a refund claim and then filing for suit for refund in court.  Another option is to contest the recapture using various collection procedures afforded taxpayers, such as collection due process.  It is important to know that the IRS efforts to unilaterally recapture refunds through collection procedures is a new process unique to the ERC that may also be subject to challenge.  Taxpayers should consult with their representative to discern which option is best for their case.  

5.  If I choose to go to Appeals, how long will the process take?

Unfortunately, it will likely be at least one year before you have an Appeals Conference.  Taxpayers will want to monitor the refund lawsuit statute of limitations while their case is in Appeal (described in Question 8 below). 

6.  What happens at Appeals?

Taxpayers first submit a written statement with their identifying information, statement of intent to appeal, written explanation of their ERC claim, as well as documentation supporting that claim. After the Appeals officer has reviewed the written statement, Taxpayers will have a meeting with the Appeals officer where they may present their case. The Appeals officer’s job is to try to settle the case based on the hazards of litigation. That means you should get 100% of the ERC if your case is airtight.  The Appeals officer should offer a hazards settlement for everything in between, based on the strength of your position.  Taxpayers should work with their representatives to ensure they are presenting the strongest case possible.

7.  My Appeals Officer disallowed my ERC claim – what are my options?

Taxpayers can apply for Post Appeals Mediation, which may give them a second opportunity to settle the issue with IRS Appeals.  Or, they may file a suit for refund in District Court or the Court of Federal Claims to challenge the claim disallowance.  

8.  How long do I have to file a suit for refund?

A taxpayer generally must file a suit for refund 2 years from the date of the claim disallowance sent by certified mail.  That period can be extended if the IRS and the taxpayer agree.   It is critical that the period either be extended or that the taxpayer file suit before the 2 years lapses, or the taxpayer’s claim will be barred regardless of merit.  Please note, filing a protest with the Office of Appeals does not extend the two-year period to file a refund.  Taxpayers should work with their representatives to monitor this deadline and enter any necessary extensions or file a refund lawsuit before the deadline. 

9.  What happens in litigation?

Taxpayers often settle their ERC claims after filing suit in District Court or the Court of Federal Claims.  Once a Department of Justice attorney is assigned to the case, Taxpayers may submit an explanation of their ERC claim with supporting documentation to the attorney.  This documentation typically streamlines the settlement process and prevents ERC claims from going to trial. 

10.  What if I used a PEO?

PEOs filed combined claims for refund in which they aggregated clients.  The IRS will only communicate with the PEO about the claim.   Whether taxpayers have standing to sue the United States for a refund when the claim was filed by the PEO is an open question.  You should speak with an attorney if you believe that the IRS paid your refund to a PEO but the PEO has not forwarded the refund to you with interest.