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The IRS sent out 20,000 disallowment letters last week for the Employee Retention Credit (ERC) in an effort to audit any false claims and decipher ineligible businesses. When properly claimed, the ERC is a refundable payroll tax credit for wages paid and health plan expenses that occurred during the COVID-19 pandemic and is available to employers who meet specific eligibility requirements. However, with the help of misleading marketing campaigns, many small businesses and other employers filed for the ERC without meeting the basic criteria. Now, the IRS is taking action, starting with the disallowment letters.

Who is Receiving the Disallowment Letters?

Disallowment letters are still in the process of being mailed as a part of the ongoing IRS review. There are two categories in which a business could receive a disallowment letter:

  1. The business or entity did not exist yet
  2. There were no paid employees during the period of eligibility

What Does This Mean to Those Who Filed an Inaccurate Claim?

Those who have received a disallowment letter await future action with the IRS. This can be in the form of repayment, interest, or penalties. Those who have yet to receive money from a false report or whose claims have yet to be processed by the IRS still have time to withdraw. The IRS has also verbally confirmed a disclosure program that will assist employers with repaying their incorrect refund and avoiding any more involvement with the IRS for ERC purposes.

Withdrawing Pending Claims

Taxpayers who are or may be ineligible for the ERC have until the end of 2023 to withdraw any pending claims. Ineligible businesses who have not received a refund still have time to avoid any actions with the IRS. Employers should consult a reputable CPA firm and the IRS ERC Eligibility Checklist if they have questions. Those who submit a withdrawal request will receive an acceptance or rejection letter from the IRS to confirm their status.

Calvetti Ferguson Specialty Tax Credit Consulting

Whether you are an employer who has received a disallowment letter or is still waiting on review, Calvetti Ferguson has an experienced team to help guide you through the process. We have assisted many businesses in determining their eligibility status, and are able to review, revise, or withdraw and previously claimed credits issued.

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Calvetti Ferguson works with middle-market companies, private equity firms, and high-net-worth individuals nationwide. Regardless of the complexity of the compliance, assurance, advisory, or accounting need, our team is ready to help you. Please complete the form below, and we will follow up with you shortly.