Frost Law
When the IRS disallows a claim for refund by mailing Letters 105C or 106C by certified or registered mail, a taxpayer has two options—submit a formal protest to the IRS Office of Appeals or sue the Service in federal court to litigate the refund claim. For those who would prefer first attempting to resolve the denied claim through IRS administrative channels, appealing the disallowance will allow for an administrative path to resolving the dispute.
Once the IRS sends a notice of disallowance stating that all or part of the refund claim is disallowed, a taxpayer has 30 days from the date on the notice to appeal the decision.
For refunds over $25,000, taxpayers are required to submit a formal written protest. This protest must contain the following items:
For refunds of $25,000 or less, a taxpayer is permitted, but not required, to request a small dollar case appeal instead. The less formal, small-dollar case appeal requires only a written statement of a desire to appeal to the Office of Appeals, an identification of the tax period(s) or year(s) and disallowed item(s) disagreed with and reason for disagreeing, and the taxpayer’s name, address, SSN/EIN, telephone number, and a copy of the notice of disallowance.
For an ERC refund claim, the written protest should include how it was determined the business qualified for the tax period(s) at issue, how the credit was computed—including how qualified wages were calculated (including how other COVID-19 relief programs, such as forgiven PPP loans, were considered in this calculation), how the business determined whether it is or is not part of an aggregated or affiliated group, information relating to full-time employee counts, and information relating to any wages paid to majority owners or employees related to majority owners.
For tax periods eligible under the gross receipts test, the written protest should include documentation supporting the required decline in gross receipts. For tax periods eligible under the full-or-partial suspension of operations test, the written protest should include applicable governmental orders and written explanations of how the governmental restrictions suspended the business operations. It should also include any contemporaneous business records demonstrating the suspension.
The law and authority section of the written protest should include citations to relevant parts of the CARES Act, as amended by the Relief Act and the American Rescue Plan, as well as Internal Revenue Code section 3134, as amended by the Infrastructure Act. It should also cite to IRS Notices, such as Notice 2021-20, and Internal Revenue Code sections and Treasury Regulations that support the employer’s position.
After submitting a written protest, the IRS Office of Appeals will consider all relevant information and documentation included in the protest and may make a decision independently or may contact the taxpayer. In some cases, the IRS examiner or their manager may take a second look at the claim before the case moves forward to the IRS Office of Appeals.
If the appeals employee sustains the disallowance, in whole or in part, the taxpayer may either request reconsideration of this decision or file a lawsuit in federal court. Generally, the Office of Appeals will only reconsider claims as long as at least six months remain on the statute of limitations for filing a lawsuit.1 Refund lawsuits, however, have a more generous timeframe—the taxpayer has two years from the date the IRS mailed a notice of disallowance to bring a lawsuit in federal court challenging the disallowance and having the refund claim decided by the courts.
The IRS Office of Appeals provides an administrative avenue to resolve a denied refund claim in contrast to the high-stakes realm of refund litigation. If an employer chooses first to appeal the disallowance of their ERC claim, having a well-drafted written protest with substantial documentation and well-cited legal authority is absolutely vital to resolving the claim in their favor. And the litigation option remains viable irrespective of the taxpayer’s success with the administrative remedy.
Frost Law attorneys have significant experience in tax controversy matters, ERC eligibility analysis, and refund claim disputes. If you need assistance in determining how best to resolve a disallowed refund claim, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of expert tax attorneys.
When the IRS disallows a claim for refund by mailing Letters 105C or 106C by certified or registered mail, a taxpayer has two options—submit a formal protest to the IRS Office of Appeals or sue the Service in federal court to litigate the refund claim. For those who would prefer first attempting to resolve the denied claim through IRS administrative channels, appealing the disallowance will allow for an administrative path to resolving the dispute.
Once the IRS sends a notice of disallowance stating that all or part of the refund claim is disallowed, a taxpayer has 30 days from the date on the notice to appeal the decision.
For refunds over $25,000, taxpayers are required to submit a formal written protest. This protest must contain the following items:
For refunds of $25,000 or less, a taxpayer is permitted, but not required, to request a small dollar case appeal instead. The less formal, small-dollar case appeal requires only a written statement of a desire to appeal to the Office of Appeals, an identification of the tax period(s) or year(s) and disallowed item(s) disagreed with and reason for disagreeing, and the taxpayer’s name, address, SSN/EIN, telephone number, and a copy of the notice of disallowance.
For an ERC refund claim, the written protest should include how it was determined the business qualified for the tax period(s) at issue, how the credit was computed—including how qualified wages were calculated (including how other COVID-19 relief programs, such as forgiven PPP loans, were considered in this calculation), how the business determined whether it is or is not part of an aggregated or affiliated group, information relating to full-time employee counts, and information relating to any wages paid to majority owners or employees related to majority owners.
For tax periods eligible under the gross receipts test, the written protest should include documentation supporting the required decline in gross receipts. For tax periods eligible under the full-or-partial suspension of operations test, the written protest should include applicable governmental orders and written explanations of how the governmental restrictions suspended the business operations. It should also include any contemporaneous business records demonstrating the suspension.
The law and authority section of the written protest should include citations to relevant parts of the CARES Act, as amended by the Relief Act and the American Rescue Plan, as well as Internal Revenue Code section 3134, as amended by the Infrastructure Act. It should also cite to IRS Notices, such as Notice 2021-20, and Internal Revenue Code sections and Treasury Regulations that support the employer’s position.
After submitting a written protest, the IRS Office of Appeals will consider all relevant information and documentation included in the protest and may make a decision independently or may contact the taxpayer. In some cases, the IRS examiner or their manager may take a second look at the claim before the case moves forward to the IRS Office of Appeals.
If the appeals employee sustains the disallowance, in whole or in part, the taxpayer may either request reconsideration of this decision or file a lawsuit in federal court. Generally, the Office of Appeals will only reconsider claims as long as at least six months remain on the statute of limitations for filing a lawsuit.1 Refund lawsuits, however, have a more generous timeframe—the taxpayer has two years from the date the IRS mailed a notice of disallowance to bring a lawsuit in federal court challenging the disallowance and having the refund claim decided by the courts.
The IRS Office of Appeals provides an administrative avenue to resolve a denied refund claim in contrast to the high-stakes realm of refund litigation. If an employer chooses first to appeal the disallowance of their ERC claim, having a well-drafted written protest with substantial documentation and well-cited legal authority is absolutely vital to resolving the claim in their favor. And the litigation option remains viable irrespective of the taxpayer’s success with the administrative remedy.
Frost Law attorneys have significant experience in tax controversy matters, ERC eligibility analysis, and refund claim disputes. If you need assistance in determining how best to resolve a disallowed refund claim, don't hesitate to reach out to us at (410) 497-5947 or schedule a confidential consultation with our team of expert tax attorneys.
