IRS ERC Disallowance Appeal

The situation

A small restaurant that legitimately qualified for the Employee Retention Credit, documented pandemic-era revenue decline, real payroll records, gets an IRS Letter 105-C fully disallowing its claim, swept up in the IRS's mass automated risk-scoring campaign that was designed to catch fraudulent claims pushed by "ERC mills" but inevitably also flags legitimate ones. The owner needs to submit a written protest with specific required elements before losing the right to appeal, and has no guidance beyond general advisory articles from accounting firms explaining the process in the abstract.

Who receives this

Small businesses that filed an ERC claim (particularly those who self-filed or used a now-inactive preparer) and received an IRS Letter 105-C or 106-C disallowance notice.

Why the agency will not advise you

The IRS runs the risk-scoring disallowance sweep but doesn't help the flagged business build its specific protest response; existing resources are advisory content from CPA firms and tax attorneys, not a self-serve document generator that produces the required written explanation, business description, and worksheets.

Key facts, with sources

• Beginning June 2024, the IRS processed Employee Retention Credit claims through an automated risk-scoring model, categorizing them as high risk, low risk, or unacceptable level of risk, and issued approximately 28,000 disallowance notices (Letter 105-C for full disallowance, Letter 106-C for partial disallowance) in a mass sweep during summer 2024. On April 27, 2026, the IRS announced a new pathway allowing taxpayers who previously responded to a disallowance and have six months or less remaining before their two-year statutory deadline under IRC § 6532(a) to request an extension using Notice CP320B and Form 907, confirming the IRS continues to actively manage this population of disallowed claims into 2026, not just as a historical 2024 event. Source: Protect Your Employee Retention Credit Claim: Use IRS's New Streamlined Process to Request an Extension — Taxpayer Advocate Service · Understanding Letter 105-C, Disallowance of the Employee Retention Credit — IRS
• A written protest of an ERC disallowance must include specific elements per the IRS's own December 2024 informal guidance: a written explanation of facts supporting the taxpayer's entitlement to the ERC, a description and summary of the entity's trade or business operations, copies of worksheets used to compute the ERC, and a statement confirming that the calculations did not include wages that don't qualify. No self-serve software tool for building this protest response was found in two dedicated searches; available resources are advisory articles and guides from accounting firms (RSM, BDO, AICPA) and tax attorneys explaining the process, not a document-generation tool. Source: Responding to ERC-related Disallowance Notices — RSM US · IRS Rolls Out Updated Extension Request Pathway for Denied ERC Refund Claims — BDO

When to bring in a professional

Self-serve responses fit routine cases: clear facts, amounts a business can absorb, and a deadline still ahead of you. Bring in a licensed professional when the amount at stake is large relative to their fee, the facts are genuinely disputed, criminal exposure is possible, or the deadline has already passed. A short paid consultation to sanity-check your plan is often worth it even when you handle the filing yourself.

All sources for this guide

1. Protect Your Employee Retention Credit Claim: Use IRS's New Streamlined Process to Request an Extension — Taxpayer Advocate Service
2. Understanding Letter 105-C, Disallowance of the Employee Retention Credit — IRS
3. Responding to ERC-related Disallowance Notices — RSM US
4. IRS Rolls Out Updated Extension Request Pathway for Denied ERC Refund Claims — BDO