IRS Letter 105-C: Your ERC Claim Was Fully Denied

Letter 105-C is the IRS's official notice that your Employee Retention Credit claim has been completely disallowed. No credit will be paid unless you successfully challenge this decision. While this is a serious setback, it's not the end of the road—you have appeal rights that must be exercised within strict deadlines.

What Letter 105-C Means for Your Business

When you receive Letter 105-C, it means:

• Complete denial: Your entire ERC claim for the quarters specified has been disallowed.
• No refund forthcoming: You will not receive any ERC refund unless you successfully appeal or litigate.
• Clock is ticking: Your 2-year statute of limitations for filing a refund suit begins from the date of this letter.

The Critical 2-Year Deadline

Unlike most IRS deadlines, the 2-year period to file a lawsuit in federal court is absolute. It cannot be extended by:

• Filing an appeal: The appeals process does not toll (stop) the 2-year clock.
• Requesting reconsideration: Audit reconsideration requests don't extend the deadline.
• Correspondence with the IRS: No amount of back-and-forth communication extends this deadline.

Your Options After Receiving Letter 105-C

You have three main paths forward:

1. Request an Appeal: Within 30 days, you can request a conference with the IRS Independent Office of Appeals. For claims over $25,000, this requires a formal written protest.
2. File Suit in Federal Court: You can file a refund suit in U.S. District Court or the Court of Federal Claims. This preserves your rights but involves litigation costs.
3. Accept the Denial: If you don't believe you can successfully challenge the denial, you may choose not to pursue further action.

How to File an Appeal

To appeal Letter 105-C, you must:

• Act within 30 days: Your request for appeal must be submitted within 30 days of the letter date.
• Submit a written protest: For claims over $25,000, you need a formal written protest explaining why you disagree with the disallowance.
• Include supporting documentation: Provide any evidence that supports your eligibility that wasn't previously considered.
• State the facts and law: Your protest should clearly explain the factual basis and legal authority for your position.

Common Reasons for ERC Denial

Understanding why your claim was denied helps you decide whether to appeal:

• No qualifying government order: The IRS may have determined that no government order significantly impacted your operations.
• Insufficient documentation: You may not have provided adequate evidence of eligibility.
• Essential business exception: If your business was deemed essential, you may not qualify unless you can prove partial suspension.
• PPP wage overlap: Wages used for PPP forgiveness cannot also be used for ERC.
• Gross receipts calculation errors: Your quarterly comparisons may not show the required decline.