Employee Retention Credits (ERCs) are critical for many ongoing businesses. Many businesses are still waiting on the IRS to pay out the ERC claims; others anticipate the IRS will attempt to deny or claw back the claims, putting the burden on the business to hire tax professionals to defend them.

Recently, the IRS started sending out denial letters to businesses “where there are warning signs the claim is in error.” The denial letters I have seen thus far have related to relatively small ERC claims ($5,000 to $75,000).

How does a business dispute the IRS's denial of an ERC claim? It appears that some IRS letters are offering a chance to substantiate the claim with the IRS Office of Appeals, while other letters direct businesses to file a lawsuit in District Court or the Court of Federal Claims. Businesses would be wise to seek advice from a tax attorney, accountant, or other tax professional to determine the best course of action.

The [IRS] said in June that it would deny tens of thousands more [ERC] claims in the weeks ahead, after digitizing about 1 million claims worth about $86 billion. The IRS predicts between 10% and 20% claims are highest-risk and “show clear signs of being erroneous.”

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