ERC Audit or Denial? Your Claim May Still Be Viable.

The Current Landscape

What the IRS Is Actually Doing on ERC Right Now

The short version is this: the IRS placed a moratorium on processing new ERC claims in September 2023 and has spent the time since then sorting legitimate claims from promoter-driven ones. As of 2026, the agency is working through a backlog of more than 1 million claims while simultaneously auditing and recapturing credits already paid. If you have an open ERC matter, your case is somewhere in that pipeline.

A few specific procedures are worth understanding:

• Letter 6577 — the initial inquiry letter. The IRS asks for documentation supporting your claim. Response window is typically 30 days. Treat this as the start of an audit, not a routine request.
• Letter 105-C — a disallowance letter. The IRS has decided the claim is not allowed and is denying the credit. You have 30 days to file an administrative appeal with the IRS Office of Appeals. After that, your only options are Tax Court (if a Notice of Deficiency was issued) or a refund suit in U.S. District Court or the Court of Federal Claims.
• Letter 6612 / Form 4564 IDR — Information Document Requests during examination. What you produce and how you produce it controls the audit. Document review before disclosure is not optional.
• The 5-year statute of limitations under IRC §3134(l) — Congress extended the assessment period for ERC claims for Q3 and Q4 2021 to five years from the date the return was filed. For 2020 and earlier 2021 claims, the standard three-year period applies. This matters because it determines how long the IRS has to come after you.

The deadlines are not flexible. Missing a 30-day appeal window or a 90-day Tax Court petition deadline forecloses your defense entirely. If you have one of these letters in hand, the clock is running.

What We Do

What ERC Defense Looks Like

Here’s the actual issue with ERC matters: the IRS is treating a wide range of claims as promoter-driven, including claims that were legitimately documented and submitted in good faith. The defense work involves rebuilding the eligibility record under Notice 2021-20 and Notice 2021-49, then walking the agent or appeals officer through it on the agency’s own terms.

Audit stage. We respond to Letter 6577 or Letter 6612 with a structured eligibility memo, supporting payroll records, the specific government order or gross-receipts data used to qualify, and documentation of which wages were claimed in which quarter. We push back on agent positions that misapply the rules — particularly on the partial-suspension test, where examiners frequently demand a level of operational impact that the regulations do not require.

Appeals stage. If the case isn’t resolved at exam, we file a formal protest within the 30-day window and move it to the IRS Office of Appeals. Appeals officers are independent of the examination function and have authority to settle based on hazards of litigation — which means they can give weight to legal arguments the examiner refused to consider.

Litigation stage. When the case cannot be settled administratively, we have two paths: petition the U.S. Tax Court under a Notice of Deficiency (no prepayment required), or file a refund suit in U.S. District Court or the Court of Federal Claims after paying the disputed amount. Each forum has procedural and substantive trade-offs we work through with each client.

Other Paths

Voluntary Disclosure and Withdrawal Programs

Two separate IRS programs exist for taxpayers whose ERC claims may not have been legitimate or who have second thoughts:

• ERC Withdrawal Program — for claims that were filed but not yet paid. You can withdraw the claim and the IRS treats it as if it had never been filed. No penalty, no interest, no future audit on the withdrawn quarters. Available while the claim is still pending.
• ERC Voluntary Disclosure Program (VDP) — for claims that were paid. The original VDP closed in March 2024; a second-round VDP closed in November 2024. The IRS has signaled future programs are possible. The basic mechanics: repay 80 percent of the credit received (or 85 percent in the second round), avoid civil penalties, and resolve the matter outside of an audit.

The decision between defending the claim, withdrawing it, or pursuing voluntary disclosure depends on the strength of the eligibility position, what stage the claim is in, and what other exposure exists (False Claims Act, criminal). We work through that analysis with each client before any path is chosen.

Eligibility Standards

The Eligibility Tests That Actually Matter

ERC eligibility comes down to four pathways under IRC §3134 and Notice 2021-20:

1. Government order test (full or partial suspension) — a government order limited operations more than nominally. The IRS reads “more than nominally” narrowly; the regulations are more accommodating than examiners often acknowledge.
2. Gross receipts decline test — for 2020, more than 50% decline against the same quarter in 2019. For 2021, more than 20% decline against the same quarter in 2019. The election to use the immediately preceding quarter (the “alternative quarter election”) is available in 2021.
3. Recovery startup business — eligible for Q3 and Q4 2021 if you started business after February 15, 2020, with average annual gross receipts under $1 million. Capped at $50,000 per quarter.
4. Supply chain disruption — eligibility based on supplier disruption rooted in a government order. The IRS has historically taken a narrow view; the regulatory framework is more forgiving than the agency’s enforcement posture.

Most ERC disputes turn on documentation. The credit is real and the legal framework supports legitimate claims. What the IRS is policing is whether the eligibility position has the documentary record to support it. That’s what defense work is about.

What to Expect

After You Book Your Call