The Employee Retention Credit (ERC) has served as a vital source of financial relief for businesses impacted by the unprecedented economic challenges associated with COVID‑19. While many employers have successfully received their ERC refunds, a significant number of employers are still waiting on ERC refunds as IRS scrutiny increases. Many ERC claims are still awaiting processing, with others under examination, pending IRS Independent Office of Appeals (Appeals) conferences, or subject to ongoing litigation.
If an employer has not yet received an ERC refund and has not been contacted by the IRS, taking proactive steps is advisable. Employers are encouraged to contact the IRS to request a status update and to obtain an IRS transcript for Form 941, Employer’s Quarterly Federal Tax Return, for any outstanding periods. Doing so can help confirm that the IRS has record of the ERC claim and that no actions, such as the issuance of notices or other correspondence, have occurred without the employer’s knowledge.
Learn about recent legislation, new IRS notices, updated guidance, and practical steps employers can take to help navigate unresolved ERC refund claims in this article.
Five Key Issues to Know if Your Company’s ERC Claim Is Unresolved
1. Receipt of a Letter Fully or Partially Denying an ERC Refund (Letters 105-C/106-C)
When the IRS determines that an employer’s ERC claim should be disallowed, in whole or in part, it issues either a Letter 105-C (full disallowance) or a Letter 106-C (partial disallowance). These letters generally identify the amount of the claim, the applicable period, basic taxpayer information, and the stated reason for the denial. In many cases, however, the stated reasons for denial are not employer-specific but instead rely on generic boilerplate language. For example, the letters often assert that IRS “records indicate there were no government orders related to COVID‑19 in effect during the quarter(s) for which the ERC was claimed that would have fully or partially suspended the taxpayer’s trade or business,” and further state that the employer did not experience the required decline in gross receipts. Although many of these letters appear to focus on third-quarter 2021 ERC claims, employers may receive a Letter 105-C or Letter 106-C for any quarter in which an ERC claim was filed.
Upon receipt of a Letter 105-C or Letter 106-C, employers generally have three courses of action to consider:
- Initiate an administrative protest to appeal the determination.
- Pursue legal action in court.
- Take no action.
In most circumstances, submitting an administrative protest is the recommended course of action.
Importantly, Letters 105-C and 106-C also trigger a critical statute of limitations. An employer has two years from the date of the letter to resolve the matter administratively or file suit in court. Accordingly, it is essential to monitor this two‑year period to ensure the employer does not forfeit their rights to the ERC refund. If the statute of limitations is approaching and the matter has not been resolved administratively, the employer must either file suit before the expiration of the two‑year period or request an extension by filing Form 907, Agreement to Extend the Time to Bring Suit. Extensions are not automatic and require IRS approval. If approved, the employer will have additional time to continue pursuing an administrative resolution before deciding whether to proceed to court.
2. Enforcement of the New Third- & Fourth-Quarter 2021 Filing Deadline
A recent change in the law has allowed the IRS to deny certain 2021 ERC claims, even if they would have been timely under prior rules. The One Big Beautiful Bill Act (OBBBA or OB3) introduced new provisions that expressly prohibit the IRS from allowing or refunding ERC claims for the third and fourth quarters of 2021 if those claims were filed after January 31, 2024.
In response to this change, the IRS has been issuing Letters 105-C to disallow employers’ third- and fourth-quarter 2021 ERC claims on the grounds that the claims were filed after January 31, 2024. In many cases, however, these Letters 105-C are incorrect because the employer did, indeed, file the ERC claim on or before January 31, 2024.
Employers receiving a Letter 105-C generally should respond in a timely manner by filing a protest and submitting evidence that the ERC claim was filed on or before January 31, 2024. Acceptable evidence may include a United States Postal Service (USPS) certified mail receipt, a USPS return receipt card, or other proof of timely mailing using an accepted delivery method. If an employer lacks proof of timely mailing, alternative response options may still be available, depending on the employer’s specific facts and circumstances. As previously discussed, the Letter 105-C also initiates a two-year statute of limitations that must be tracked.
Importantly, if an ERC claim for the third and fourth quarters of 2021 was filed after January 31, 2024, but the refund or credit was issued before July 4, 2025, the new January 31, 2024 deadline does not apply. In those cases, the IRS will not claw back the refund or credit on the basis that the claim was filed after the January 31, 2024 deadline.
3. Issuance of Unauthorized Signatures Notices (Letter 4384C)
In addition to the disallowance letters discussed above, another common IRS notice issued to employers who have filed ERC claims is Letter 4384C. This letter asserts that an ERC claim cannot be processed because it is incomplete. One frequent reason for issuance of Letter 4384C is the IRS’ determination that the individual who signed the ERC claim was not an authorized signatory. An authorized signatory is typically a corporate officer or another individual with legal authority to bind the company.
When an employer receives a Letter 4384C asserting that the return was not signed by an authorized individual, the employer generally has between 7 and 30 days to respond. Because the response deadline can vary by letter, it is important to carefully review the notice and comply with the specified due date. If the ERC claim was signed by an authorized individual, the employer should submit documentation substantiating the signatory’s authority with the response. If the claim was not signed by an authorized signatory, the employer should generally respond by submitting a copy of the ERC claim, newly signed by an authorized individual.
4. Receipt of a Letter Requesting Additional Information About Your Claim (Letter 6612)
Another common tool the IRS is using to challenge ERC claims is Letter 6612, Notice of Audit and Request for ERC‑Related Documentation. Letter 6612 is typically accompanied by Form 4564, Information Document Request (IDR). The IDR is not tailored to the individual employer; instead, it contains standardized, generic requests. Employers usually have 30 days to respond to the IDR and may submit responsive documentation by mail, fax, or through the IRS Document Upload Tool (DUT). Regardless of the submission method used, employers should retain proof of timely submission.
These audits are unique in that they are conducted as service center examinations and do not assign a specific IRS Revenue Agent to the case. Rather, the IRS uses a pooled review system to evaluate the submitted documentation. As a result, obtaining status updates, confirming receipt of an IDR response, or requesting extensions can be challenging, because there is no designated IRS contact assigned to the audit.
In some instances, the IRS has erroneously issued Letter 105-C disallowances based on an alleged failure to respond to a Letter 6612, even when a timely response was submitted. Accordingly, it is important to maintain documentation evidencing a timely and complete response.
5. Amending Income Tax Returns for ERC Refunds Received or Denied
Employers claiming the ERC are required to reduce their wage expense deductions for the year the credit is related to, which creates confusion when refunds are delayed or denied. However, the IRS has issued guidance on this matter.
If the employer receives an ERC refund and never reduced wage deductions, the employer typically does not need to amend prior returns. Instead, the employer can include the wage expense reduction as income in the year the refund is received.
If the employer’s ERC claim is denied after it has already reduced wage deductions, the employer may generally restore the wage deduction in the year the denial becomes final, or amend the original return if the statute of limitations is still open. If the employer’s ERC claim is still under review or appeal, the IRS’ position is that the employer should wait and not amend returns or adjust income until the challenge is resolved.
The bottom line is that whether (and when) to amend income tax returns depends on whether the ERC was received, denied, or still being contested. Acting too early can create unnecessary compliance issues. For more details, see IRS’ Frequently asked questions (FAQs) about the Employee Retention Credit.
How Forvis Mazars Can Help
If your company is still waiting on an ERC refund, has received IRS correspondence, or is unsure how recent guidance applies to your company’s situation, our tax controversy and procedure ERC team can help your company evaluate next steps. By working alongside your company, our services are tailored to help meet your company’s unique needs. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.
The information set forth contains the analysis and conclusions of the author(s) based upon his/her/their research and analysis of industry information and legal authorities. Such analysis and conclusions should not be deemed opinions or conclusions by Forvis Mazars or the author(s) as to any individual situation as situations are fact-specific. The reader should perform their own analysis and form their own conclusions regarding any specific situation. Further, the author(s)’ conclusions may be revised without notice with or without changes in industry information and legal authorities.