The IRS is cracking down on business entities. During the pandemic, the IRS created the Employee Retention Credit which was established to help business owners pay their employees despite the government shutdown. The IRS eventually became overwhelmed with other sectors due to paper and e-filings getting backed up.
Since then, the IRS has been able to go through all of the files and it became very apparent that many entities were not compliant with the requirements to receive the ERC. This is primarily due to mass marketing scams about the benefits of the ERC which caused a lot of miscommunication.
There have been over 20,000 disallowed letters sent to entities to choose to opt-out and of course correct this situation so that repercussions aren’t given to them. What caused this phenomenon was entities filed for an ERC without employees or simply the entity truly didn’t exist.
IRS Withdraw Program for Entity Filers
The IRS understands how this happened. There were a lot of misleading marketing campaigns that promoted the Employee Retention Credit. Since the IRS saw through the manipulation, they are giving filers a chance to make it right with the help of their special Withdraw Program.
The Withdraw program is specifically for those with a pending claim who realize they filed an inaccurate claim. There will also be a separate voluntary disclosure program which will be unveiled allowing those who received questionable payments to come in and avoid future IRS action.
The program is an olive branch for filers who either were manipulated or just didn’t realize the true requirements to receive the ERC. If you are an entity that also filed for this credit but wasn’t in compliance, follow the guidelines of the IRS and withdraw to prevent them from taking action.
Starting this week, taxpayers who are ineligible for the credit will begin receiving copies of Letter 105 C, Claim Disallowed.
This group of letters will cover taxpayers ineligible for the ERC either because their entity did not exist or did not have employees for the period when the credit was claimed.
What is Letter 105 C
The “Claim Disallowance” IRS Letter 105C or Letter 106C is your legal notice that the IRS is not allowing the credit or refund you claimed. This notice or letter may include additional topics that have not yet been covered here.
The letter states the reason for the IRS’s decision, the date of the decision, and the tax year or period for which the claim is denied. In addition, the letter provides a timeframe in which you must file suit if you wish to challenge the denial in court.
What is My Taxpayers Rights
The IRS respects taxpayer rights, and the disallowance letter will explain that a taxpayer who disagrees with the disallowance can respond with documentation that supports their eligibility or claim amount, or they can file an administrative appeal.
The disallowance letters that identify ineligible claims before they’re paid serve several purposes that help taxpayers and tax administration help ineligible taxpayers avoid audits, repayment, penalties, and interest.
It protects taxpayers by preventing an incorrect refund from going to an ERC promoter, and
saves IRS resources by disallowing incorrect credits before they enter the audit process.
The IRS plans additional letters beyond the disallowance letters. Plans are also being finalized for a special voluntary disclosure program involving ERC claims that will be announced later this month.
The IRS is also continuing to review ERC claims and may request more information from taxpayers to support their ERC claim.
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