Based on recent alerts and news, it appears that the IRS has started distributing “denial letters” (105C Letters) to the 10-20% of what it considers to be “highest risk” ERC claims. This aligns with their June announcement, which you can read more about in our most recent IRS Update blog. With only 30 days to appeal these letters, it is now more imperative than ever to ensure that you are actively monitoring your IRS employment tax transcripts!
These “denials” are being issued as a Code 290, marked “Disallowed Claim” by the IRS and are causing quite a stir within the ERC community. Many of these denials cite “deriving false conclusions” as the justification, leaving taxpayers with a denial notice but no request for additional information.
Note, this new wave of Code 290 transactions should not be confused with a recent wave of Code 290 transactions marked as “Additional Tax Assessed” accompanied by a zero transaction balance. The IRS, nor the tax professional community, have yet solved the puzzle of what the first wave represented.
According to Justin Elanjian, managing director at Stout and pre-eminent thought leader in the ERC space:
“With the recent surge in denial letters, it is crucial for businesses awaiting ERC claims to understand their options for appealing erroneous IRS conclusions. Equally important is ensuring these businesses and their advisors have adequate time and resources to prepare their responses, whether to the IRS, the Office of Appeals, or through a District Court suit. Therefore, businesses should strongly consider maximizing their potential response time by diligently monitoring their IRS tax transcripts, particulalry with the always-present risk that the paper letters never reach their mailboxes.”
The IRS provides guidance on “What to do if you Disagree,” noting that taxpayers can either appeal or file a refund suit. However, both options require time and money—resources many businesses lack, especially since these notices are being delivered via snail mail, causing further delays.
If you or your clients have filed for the ERC, it's crucial to stay informed about the status of your claim. Even if your case seems straightforward, knowing whether a Code 290 or any other potential red flag code is associated with your filings for any quarter can give you the advantage to start planning early.
Don’t risk finding out the status of your claim too late. By signing up for TaxNow, you can gain a clear view of the status of your claim. We help you stay ahead by providing timely updates and insights, ensuring you’re always in the loop.
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