ERC Denial Letters: What To Do?
By Jeffrey M. Glassman on August 12, 2024
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Jeffrey M. Glassman
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Having been involved in ERC matters for some time now, we have been waiting for the IRS to finally act—and act in a material manner—with respect to its massive inventory of pending ERC claims. The IRS is finally acting. To that end, the IRS has begun issuing large batches of ERC denial letters.
Of the denial letters that we are seeing, there are several recurring issues:
First, there is a large focus on the later periods in 2020 and 2021, when some governments removed or relaxed their COVID-19 orders. Second, there is a large focus on whether there was a government order in place where the taxpayer is located.
While in many circumstances, the government orders locally will have the most bearing on a particular business, there are most certainly government orders elsewhere that can impact a business. The IRS in all likelihood has some database of government orders and is using a wide net to deny claims based on that information. Using that methodology, however, without considering a business’ particular circumstances, the IRS is going to disallow valid ERC claims.
Being told by the IRS that your business does not qualify for ERC is intimidating and many businesses with valid claims may not pursue the matter further. However, if prior to the IRS denial letter you believed you had a valid claim, you should not take the IRS’s denial letter at face value. Speaking with reputable tax counsel is highly recommended and sensible. In some cases, there is a very short window to pursue an administrative appeal, which may make sense in some cases. In other cases, litigation may be the best course of action.
If you receive an IRS ERC denial letter and would like to discuss your options (or have other ERC or civil or criminal tax questions), you can reach me at 214-749-2417 or jglassman@meadowscollier.com.
Of the denial letters that we are seeing, there are several recurring issues:
First, there is a large focus on the later periods in 2020 and 2021, when some governments removed or relaxed their COVID-19 orders. Second, there is a large focus on whether there was a government order in place where the taxpayer is located.
While in many circumstances, the government orders locally will have the most bearing on a particular business, there are most certainly government orders elsewhere that can impact a business. The IRS in all likelihood has some database of government orders and is using a wide net to deny claims based on that information. Using that methodology, however, without considering a business’ particular circumstances, the IRS is going to disallow valid ERC claims.
Being told by the IRS that your business does not qualify for ERC is intimidating and many businesses with valid claims may not pursue the matter further. However, if prior to the IRS denial letter you believed you had a valid claim, you should not take the IRS’s denial letter at face value. Speaking with reputable tax counsel is highly recommended and sensible. In some cases, there is a very short window to pursue an administrative appeal, which may make sense in some cases. In other cases, litigation may be the best course of action.
If you receive an IRS ERC denial letter and would like to discuss your options (or have other ERC or civil or criminal tax questions), you can reach me at 214-749-2417 or jglassman@meadowscollier.com.
