The employee retention credit was intended to provide financial relief to businesses affected by the Covid-19 pandemic. Yet, more than five years later, many ERC claims remain unresolved.
Some are still in IRS processing, while others are under examination, in appeals, or in ongoing litigation. For businesses with pending ERC claims, taking a proactive, process-focus approach can reduce surprises and preserve refund rights.
Here are five considerations for businesses who are still trying to resolve a claim:
First things first: Confirm the IRS has your ERC claim.
If a business hasn’t received its ERC refund and hasn’t been contacted by the IRS, it should consider proactive follow-up.
Businesses may contact the IRS for a status update and obtain an IRS account transcript for Form 941 (Employer’s Quarterly Federal Tax Return) for each outstanding period. This can help confirm the IRS has a record of the claim and identify whether any notices or correspondence were issued without the business’ knowledge.
In addition, businesses should understand the various ways the IRS may be processing outstanding ERC claims, beyond simply issuing a refund, as claims may be subject to examination, Office of Appeals consideration, or other administrative action.
Understand why the IRS says no.
When the IRS disallows an ERC claim in whole or in part, it issues Letter 105C (full disallowance) or Letter 106C (partial disallowance). These letters often include basic claim details and a stated reason for denial. However, the explanation is frequently generic rather than tailored to the business’s facts.
After receiving a letter of disallowance, a business generally has three paths: file an administrative protest, pursue litigation, or take no action. In most situations, an administrative protest is the preferred approach.
Letters 105C and 106C start a two-year statute of limitations to resolve the matter administratively or file suit, so it’s essential to monitor this two-year period to make sure the business retains its rights to the ERC refund.
Recent legislation has further complicated this landscape by prohibiting the IRS from allowing or refunding third and fourth quarter 2021 ERC claims filed after Jan. 31, 2024. The IRS has been issuing Letter 105C disallowances for those quarters based on alleged late filing. In many instances, the IRS determination is incorrect because the claim was filed in a timely manner.
Businesses in that situation generally should submit a protest with proof of timely filing, such as a USPS certified mail receipt or other acceptable evidence. Even where proof of mailing is unavailable, alternative response strategies may exist depending on the facts. If a third or fourth quarter 2021 ERC refund was issued before July 4, 2025, the Jan. 31, 2024, deadline doesn’t apply, and the IRS won’t claw back the refund on that basis.
Realize that claims are under the microscope.
Before an ERC claim reaches the formal disallowance stage, the IRS often initiates review through a service‑center examination. This commonly begins with a notice of audit (Letter 6612) accompanied by an information document request (Form 4564), which contains standardized, nonbusiness-specific document requests. Businesses generally have 30 days to respond and may submit documentation by mail, fax, or through the IRS document upload tool.
These audits differ significantly from traditional field audits, because they don’t involve an assigned revenue agent. Instead, they rely on a pooled review process, which can make it difficult to confirm receipt of submissions, obtain status updates, or request extensions due to no single point of contact.
In some cases, the IRS may request additional information following an initial submission. However, in most cases, the IRS issues a disallowance without further inquiry using Letter 105C. Unlike typical examinations, where the IRS first issues an examination report and provides an appeals pathway without triggering litigation deadlines, Letter 105C prompts the two-year statute discussed above.
The IRS at times has issued disallowances alleging it received no information document request response, even when a response was submitted in a timely manner using the IRS document upload tool. Careful recordkeeping, including proof of submission and completeness, can be critical to protecting the business’ rights.
Documentation can mean a simple fix or a new delay.
The IRS also commonly issues Letter 4384C, stating that an ERC claim can’t be processed because it’s incomplete, often due to an alleged unauthorized signature. An authorized signatory is generally a corporate officer or another individual with legal authority to bind the business.
Response deadlines can be short, often as little as a few weeks, and vary by letter, making it important to carefully review. If the signer was authorized, the response should include documentation supporting that authority. If the signer wasn’t authorized, the issue is typically resolved by submitting a copy of the claim signed by an authorized individual.
Addressing Letter 4384C quickly and correctly can prevent unnecessary processing delays and keep the claim moving forward.
Meet the deadline and keep your right to go to court.
If the dispute remains unresolved as the two-year statute of limitation approaches, the business must act to preserve its rights. Generally, that means filing a lawsuit before the statute expires or requesting an extension by filing an agreement to extend the time to bring suit (Form 907).
Extensions aren’t automatic and require IRS approval. If granted, Form 907 provides additional time to continue pursuing an administrative resolution before deciding whether to proceed to court.
In conclusion, ERC delays are no longer just a “processing” issue. They’re often riddled with procedural issues involving audits, disallowance letters, short response windows, and hard statutory deadlines.
Businesses with pending claims should focus on confirming IRS receipt and monitoring correspondence, responding quickly and documenting submissions, and tracking the two-year window to preserve litigation rights when necessary.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Kristin Gutting is a principal at Forvis Mazars, where she leads the firm’s tax controversy and procedure group.
Marybeth Cassaro, Brittany Francis, and Megan Linville of Forvis Mazars contributed to this article.
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