San Diego ERC Audit Attorney

What Is an ERC Audit?

An ERC audit is an IRS examination of an Employee Retention Credit claim filed on Form 941-X. The IRS selects claims using an AI-driven scoring system that flags discrepancies between claimed credit amounts, reported payroll, and third-party data already in the IRS's possession. The agency has trained over 300 revenue agents specifically for ERC examinations and assigned them to a dedicated unit within the Small Business/Self-Employed (SB/SE) Division.

The IRS is trying to determine two things: whether your business actually qualified for the credit under either the government order suspension test or the gross receipts decline test, and whether the credit amount was calculated correctly after excluding PPP-forgiven wages under IRC §280C(a). Improper claims cost the federal government an estimated $100 billion — the IRS considers ERC enforcement its highest examination priority.

The critical distinction is between a correspondence audit — where the IRS requests documents by mail through Letter 6612 and Form 4564 (Information Document Request) — and a field examination, where a revenue agent visits your business. Correspondence audits are the most common for ERC, but field audits carry higher risk because agents can expand scope in real time.

6 Types of ERC Notices — and Why the Difference Matters

The notice you received determines your response deadline, your appeal rights, and whether the IRS is still examining your claim or has already made a final determination. Responding to the wrong notice with the wrong strategy wastes the most valuable asset you have: time.

Letter 6612 — ERC Examination Notice

Letter 6612 is an audit initiation notice specific to ERC claims. It identifies the quarters under examination and includes an Information Document Request (Form 4564) listing the documentation the IRS needs. You have 30 days to respond. This is the most common ERC notice and your best opportunity to resolve the audit favorably — the quality of your initial IDR response determines the trajectory of the entire case.

Letter 105-C — Formal Claim Disallowance

Letter 105-C is the IRS's official denial of your ERC refund claim. Once issued, you have two years from the date of the letter to file suit in U.S. District Court or the Court of Federal Claims. Missing this deadline permanently extinguishes your right to recover the credit.

Letter 106-C — Partial Disallowance

Letter 106-C partially disallows your claim — the IRS may approve some quarters while denying others, or reduce the credit amount. The same two-year litigation deadline applies.

CP 504 / LT 11 — Balance Due and Intent to Levy

If the IRS already refunded your ERC and then disallows the claim, you owe the money back. CP 504 is a notice of intent to levy. LT 11 is a final notice granting 30 days to request a Collection Due Process (CDP) hearing under IRC §6330.

Letter 4883-C — Identity Verification Request

The IRS uses this letter when it suspects the 941-X was filed fraudulently or without the business owner's knowledge — common with ERC mill claims.

Criminal Investigation Contact — CI Special Agents

If IRS Criminal Investigation contacts you, do not speak to agents without counsel. CI involvement means the IRS suspects fraud under IRC §7206 (filing a false document) or IRC §7201 (tax evasion). This is the most serious ERC outcome.

Notice	Who Sends It	What It Means	Response Deadline	Risk Level	Next Step
Letter 6612	SB/SE ERC Unit	Audit initiated	30 days	Moderate	File Form 2848, respond to IDR
Letter 105-C	Exam Division	Full disallowance	2 years to sue	High	Appeal or file refund suit
Letter 106-C	Exam Division	Partial disallowance	2 years to sue	Moderate–High	Evaluate accepted vs. denied quarters
CP 504 / LT 11	Collections	Balance due, levy intent	30 days (CDP)	High	Request CDP hearing
Letter 4883-C	Integrity & Verification	Identity check	30 days	Low–Moderate	Verify identity, assess filing
CI Contact	Criminal Investigation	Fraud suspected	Immediate	Severe	Retain criminal tax attorney

What Happens From the Moment You Receive an ERC Notice

1. File Form 2848 (Power of Attorney) Immediately

   We file Form 2848 with the IRS the day you retain us. This directs all IRS communication to our office — the IRS cannot contact you directly once the POA is on file. The most common mistake businesses make is responding to Letter 6612 themselves, providing disorganized documentation that gives the examiner ammunition to expand the audit scope. We control the narrative from day one.

2. Analyze Your ERC Eligibility Under Both Tests

   We independently evaluate whether your business qualifies under the government order suspension test, the gross receipts decline test, or both — regardless of what your original preparer claimed. For the gross receipts test, we verify the quarter-over-quarter calculations against 2019 baselines: a 50% decline for 2020, a 20% decline for 2021. For the government order test, we identify the specific federal, state, or local order and document whether it caused a greater than 10% nominal impact on your business operations.

3. Reconstruct and Organize the Substantiation Package

   We compile the documentation the IRS examiner needs: payroll records showing wages by employee and pay period, gross receipts calculations with quarter-by-quarter comparisons, the specific government order(s) with enforcement mechanism citations, PPP loan forgiveness documentation proving no wage overlap, and health plan expense allocations. Every document is organized to match the IDR line by line.

4. Prepare the IDR Response With Legal Memorandum

   We respond to Form 4564 with a structured legal memorandum that addresses each eligibility requirement using the IRAC method — Issue, Rule, Analysis, Conclusion. This is not a stack of documents with a cover letter. It is a legal argument that demonstrates eligibility and pre-empts the examiner's anticipated objections.

5. Manage Examiner Communications and Scope Control

   During the audit, examiners may request supplemental documentation or attempt to expand the examination to other tax years. We respond to every request strategically — providing exactly what is required and nothing more. Voluntary overproduction of documents is the single most common way audits escalate from one quarter to an entire business review.

6. Negotiate or Contest the Preliminary Findings

   If the examiner issues a preliminary report proposing disallowance, we respond with a formal rebuttal before the determination becomes final. This is the stage where practitioner knowledge matters most — we know which arguments persuade ERC examiners and which ones the IRS has already rejected in other cases.

7. Appeal or Litigate if the Determination Is Adverse

   If the IRS issues a final disallowance via Letter 105-C, we file a protest with the IRS Independent Office of Appeals within 30 days or prepare a refund suit in federal court within the two-year statutory window. We build the appeals brief during the examination — not after it closes — so we are ready to file the moment the determination is issued.

What IRS ERC Examiners Are Actually Looking For

IRS ERC examiners are trained to identify three categories of deficient claims: businesses that never qualified under either eligibility test, businesses that qualified but overcalculated the credit amount, and businesses whose claims were fabricated by promoters without the owner's informed consent.

AI Scoring and Claim Selection

The IRS uses AI-driven analysis to score ERC claims before assigning them for examination. The scoring system flags discrepancies between the credit amount claimed on Form 941-X, the employer's historical payroll reported on prior 941 filings, and third-party W-2 and 1099 data already in IRS systems. Claims filed by known ERC promoter firms are flagged automatically. Claims where the credit exceeds total reported wages for the quarter are flagged automatically. Claims filed after the September 2023 moratorium date for Q3/Q4 2021 quarters are subject to the extended six-year statute of limitations under the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025.

How Examiners Expand Audit Scope

An ERC examination that starts with one quarter can expand to all quarters claimed — and beyond. Examiners are trained to look for scope-expansion triggers: PPP wage overlap where the same wages were used for both PPP forgiveness and ERC, aggregation issues under IRC §52 where related entities failed to combine employee counts, inconsistent gross receipts between the 941-X and the income tax return, and promotional materials or engagement letters from ERC mills that reveal the eligibility analysis was template-based rather than business-specific. We have seen audits expand from a single-quarter ERC review into a comprehensive employment tax examination covering three years.

What Produces a Favorable Outcome

A favorable outcome — full or partial credit approval — requires three things delivered in the IDR response: a specific, enforceable government order (not CDC guidance or general advisories) with the citation and effective dates documented, operational evidence showing the order caused a greater than 10% impact on the business's ability to provide goods or services, and a payroll reconciliation demonstrating no wage overlap with PPP forgiveness. Examiners are authorized to close cases favorably when the documentation is complete and the legal analysis is sound. The examiner's manager reviews every ERC determination — incomplete documentation guarantees an unfavorable review at the supervisory level.

Your Rights During an ERC Audit

The Taxpayer Bill of Rights, codified at IRC §7803(a)(3), establishes ten fundamental protections that apply to every IRS examination, including ERC audits. Five of these rights are most critical during an ERC examination.

• The right to professional representation. Under IRC §7521(c), you can authorize an attorney, CPA, or enrolled agent to represent you by filing Form 2848. Once the POA is on file, the IRS must communicate exclusively with your representative. You do not have to attend any meeting or respond to any call from the IRS directly.
• The right to appeal an IRS determination. Under IRC §7803(a)(3)(E), if the IRS proposes to disallow your ERC claim, you have the right to request review by the IRS Independent Office of Appeals. Appeals officers operate independently from the examination division and have settlement authority that examiners do not.
• The right to a Collection Due Process hearing. Under IRC §6330, if the IRS sends a Notice of Intent to Levy (LT 11) after disallowing your ERC, you have 30 days to request a CDP hearing. The hearing halts levy action and allows you to challenge the underlying liability, propose an installment agreement, or negotiate an Offer in Compromise.
• The right to sue for a refund in federal court. Under 26 U.S.C. §7422, you can file suit in U.S. District Court or the Court of Federal Claims within two years of a 105-C disallowance. This is the only forum where you can compel the IRS to justify its denial before an independent federal judge.
• The right to know why the IRS is asking for information. Under IRC §7602, the IRS must explain the scope and purpose of any examination. If an examiner requests documents beyond the original IDR scope, you can challenge the request as exceeding the examination authority and file a written objection limiting the scope to the quarters originally identified.

If the IRS Disallows Your ERC: Appeals and Next Steps

IRS Independent Office of Appeals

You have 30 days from the date of the examination report to file a written protest requesting review by the IRS Independent Office of Appeals. Appeals officers have settlement authority — they can split disputed issues, accept partial credit amounts, and negotiate outcomes that examiners cannot. In our experience, Appeals resolves ERC cases more favorably than the examination level in the majority of cases because Appeals evaluates litigation risk. If your legal position is strong enough that the IRS might lose in court, Appeals has incentive to settle.

Federal Court: Court of Federal Claims or U.S. District Court

You have two years from the date of Letter 105-C to file a refund suit. This deadline is jurisdictional — miss it and no court can hear your case. The Court of Federal Claims in Washington, D.C. specializes in tax refund disputes. U.S. District Courts offer jury trials but require the full refund amount to be at issue. Early results in federal ERC litigation show the IRS is increasingly willing to settle rather than litigate — the government's own legal position on partial suspension is weaker than its examination posture suggests.

Our Track Record at This Stage

We build the appeals brief during the examination, not after it closes. By the time the IRS issues a final determination, our legal memorandum, government order compilation, and payroll reconciliation are already in litigation-ready form. We have recovered $4.2M in ERC credits for a single client after their CPA said they were ineligible, and we have secured over 100 appeal victories across all practice areas. Our approach: never accept a disallowance without exhausting every administrative and judicial remedy.

Why Brotman Law for ERC Audit Defense

• $4.2M in ERC credits recovered for a single client — we proved the government order suspension test after their CPA said they were ineligible, and the IRS examiner reversed a full disallowance.
• 400+ audit clients represented, 100+ appeal victories — we know exactly what IRS examiners are trained to look for because we sit across from them every week.
• Active ERC litigation docket in federal court — we argue partial suspension cases under Cal/OSHA hazard mitigation mandates and government order tests that other firms have never briefed.
• Direct attorney access from day one — you never speak to the IRS, attend an IRS meeting, or mail a document without our team reviewing it first. Form 2848 is filed the day you retain us.
• J.D. + LL.M. in Taxation + MBA — Sam Brotman holds three graduate degrees and has defended tax disputes for over twelve years, with particular depth in ERC government order analysis and federal court refund litigation.

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