ERC Letter 105-C and Examination Response: A Workflow for CPA Firms

Letter 105-C is the IRS's legal notice that it has disallowed an Employee Retention Credit claim, either as a refund or as a reduction of tax owed. The letter states the reason for the denial, the decision date, the tax periods affected, the appeal rights and the deadline for filing suit. The clock on that deadline starts on the date of the letter, and requesting an appeal does not stop it. A firm that receives a 105-C for a client should log the date the same day and build the response around three questions: why was the claim denied, which eligibility factor can the client prove for each quarter, and when does the court deadline expire.

Why does the IRS issue Letter 105-C?

The IRS issues the letter when it finds the business ineligible or the claim untimely. The second reason ties to the January 31, 2024 cutoff for Q3 and Q4 2021 claims under section 70605(d). The IRS sample letter cites that date for the last two quarters of 2021, and the IRS says that under Public Law 119-21 no credit or refund for those quarters is allowed after July 4, 2025 unless the claim was filed on or before January 31, 2024. See ERC claims, the cutoff and the six-year assessment period for the statute.

If the client agrees with the disallowance, no action is needed. A client that received the letter cannot use the claim withdrawal program for the periods the letter covers.

What are the three response paths?

A client that disagrees can do any of these:

1. Respond with documentation. The IRS page recommends doing this within about 30 days to protect the timeline.
2. Request an appeal with the IRS Independent Office of Appeals, either with the response or within two years of the letter.
3. File suit in the U.S. District Court or the U.S. Court of Federal Claims.

For a claim denied as untimely, the IRS says the taxpayer can appeal if it believes the claim was filed by January 31, 2024 and the disallowance was improper. The appeal needs proof of mailing or a similar record of the filing date.

How does the two-year suit clock work?

The taxpayer has two years from the date of Letter 105-C to file suit. Three points drive the workflow:

• Requesting an appeal does not extend the two years.
• If the period runs out, the IRS cannot issue a refund or allow a credit unless suit was filed or the period was extended in writing. This holds even after a favorable Appeals decision.
• When six months or less remains, the client can request an extension on Form 907, Agreement to Extend the Time to Bring Suit. The extension is not valid until the IRS countersigns it. The IRS page directs the filer to submit it through the Document Upload Tool, selecting notice CP320B.

A worked timeline: a letter dated March 2, 2026 gives a suit deadline of March 2, 2028. The recommended documentation response lands about April 1, 2026. The Form 907 window opens when six months or less remains, which is September 2, 2027. The calendar entry for that date matters most when the case is sitting with an Appeals officer and nobody is watching the court deadline.

What goes in the response package?

The IRS lists the contents. Build the response as one indexed binder:

• An explanation and documents addressing the stated reason for disallowance, with proof of timeliness if the letter cited that.
• Support for at least one eligibility factor for each disputed quarter. The three factors are a government order suspension (the orders, the highlighted provisions, a written explanation and business records), a decline in gross receipts (a written explanation, gross receipts records for all quarters of the claim year and detailed records for the comparison year, generally 2019, with summaries not accepted), and recovery startup status (proof that operations began after February 15, 2020, and average annual gross receipts of $1 million or less for the three preceding years).
• A written explanation of entitlement, a description of operations and the ERC worksheets.
• A statement confirming that wages of related individuals, wages reported for Paycheck Protection Program forgiveness and, for large eligible employers, certain amounts are excluded from the calculation. Revise and resubmit the worksheets if they are not.
• Form 2848 if the firm is acting for the client.
• The appeal request forms, if appealing.

Publication 5887, the ERC eligibility checklist, is a useful template for the eligibility section.

What letters follow a response?

The IRS page lists the follow-up correspondence a firm should recognize:

The 3064-C is the one firms miss, because it often arrives while the original response is still being assembled. Log every IRS letter with its date and the reply due date, and assign one person to the calendar.

How should the firm handle an ERC examination?

The IRS says it is closely reviewing tax returns that claim the credit. As of the week ending October 3, 2026, its ERC page counted about 13,000 claims still in process, including about 3,000 under audit and about 1,500 with the Independent Office of Appeals. A firm should expect examination requests to follow the same eligibility structure as the Letter 105-C package, so the evidence should be organized by quarter and by eligibility factor from the start.

A practical file for each examination:

1. Engagement and authority. Form 2848 on file, the power of attorney matched to the periods under review.
2. Claim history. The original Form 941, the Form 941-X, the claim date and the amount paid. Form 941-X corrections explains the amended-return mechanics.
3. Eligibility evidence by quarter. Orders and the business impact, or gross receipts schedules tied to the books, or startup records.
4. Wage computation. Qualified wages by employee with exclusions for related individuals and PPP-forgiven wages, tied to payroll registers. The tie-out follows the procedures in payroll audit procedures.
5. Income tax follow-through. The IRS ERC page requires a reduced wage deduction for 2021 quarters, which can require amending the income tax return.
6. A response log with dates received, dates due and dates sent.

For phone follow-up with the IRS on pending items, the practitioner priority service guide covers the line and what to have ready.

CORAA prepares ready-to-review audit files for US CPA firms; see /us.

Sources

• IRS, Understanding Letter 105-C, Disallowance of the Employee Retention Credit: https://www.irs.gov/coronavirus/understanding-letter-105-c-disallowance-of-the-employee-retention-credit
• IRS, Employee Retention Credit page (claims status, withdrawal program, wage deduction rule): https://www.irs.gov/coronavirus/employee-retention-credit
• IRS, Frequently asked questions about the ERC compliance provisions of the One, Big, Beautiful Bill (FS-2025-07): https://www.irs.gov/newsroom/irs-frequently-asked-questions-faqs-address-employee-retention-credits-under-erc-compliance-provisions-of-the-one-big-beautiful-bill

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error