Tax Relief Services
ERC Claim Resolution: What To Do When the IRS Reviews, Audits or Disallows Your Employee Retention Credit
Updated
The Employee Retention Credit was real, the eligibility rules were narrow, and a whole industry sprang up to tell businesses they qualified when they did not. The IRS is now working through what is left, and it says so on its own page with a monthly count. If your claim is in that count, the question is which stage it is at and what that stage allows.
The short answer: the Employee Retention Credit is a refundable credit for eligible employers affected by the pandemic, for wages paid after March 12, 2020 and before January 1, 2022. The IRS says it is concerned about a large number of improper claims and is closely reviewing returns that claim it. If your claim was ineligible you can withdraw it before it is paid, or before you cash the check. If the IRS disallowed it on Letter 105-C, you may request an administrative appeal or file suit.
ERC Claim Under Review, Audited or Disallowed?
Send us the IRS letter and the original claim. We tell you whether the claim holds up under the IRS's own eligibility rules and what the letter's stage allows. Free, confidential review, no obligation.
What the ERC was, and who was eligible
The IRS's page describes the Employee Retention Credit as a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic, with requirements that differ by period, and not available to individuals. The credit applied to qualified wages paid after March 12, 2020 and before January 1, 2022.
Its summary of eligibility is short. Generally, the businesses that qualify are those that were suspended by a government order due to the pandemic during 2020 or the first three calendar quarters of 2021, or experienced the required decline in gross receipts in those periods, or qualified as a recovery startup business for the third or fourth quarter of 2021. Every word of that is doing work. Suspended by a government order is not the same as business being slow, and the decline in gross receipts had a specific measure. The IRS's full guidance, including its eligibility checklist, is on its Employee Retention Credit page.
Why the IRS is still reviewing claims
The IRS says it is concerned about a large number of improper ERC claims and is closely reviewing tax returns that claim the credit, and it urges taxpayers to review their claims and quickly resolve incorrect ones. It also publishes a running count. As of the week ending August 1, 2026 it reported roughly 17,300 remaining claims in various stages: under review, pending payment or disallowance, under audit, awaiting review of responses to disallowances, and with the Independent Office of Appeals. It says it updates the figure monthly.
The IRS also describes what it saw from promoters, and its list is worth reading because it is a list of the things people were told. Statements that a claim carried no downside, when in reality those incorrectly receiving the credit could have to repay it with substantial interest and penalties. Pressure to claim because every business qualifies, when eligibility is complex and based on each business's facts. If you were told either of those things, the IRS's own page is telling you why your claim is being looked at.
The stages, and what each one allows
- Claim filed, not yet paid. This is the stage with the most room. The IRS says employers that submitted an ineligible claim can avoid future issues such as audits, repayment, penalties and interest by withdrawing the claim, and that the withdrawal program can be used if the ERC has not been paid, or if a check was received but has not been cashed or deposited.
- Claim under review. The IRS may ask for documentation supporting eligibility. What it sends and what it wants is covered in the CP320B review notice.
- Claim under audit. A full examination of eligibility and the wage computation. Our guide to what an ERC audit involves walks through it.
- Claim disallowed. The IRS says that if it disallowed your claim with Letter 105-C and you disagree, you may request an administrative appeal, review by the IRS Independent Office of Appeals, or file suit. It also notes that a disallowance can create issues on the income tax return that claimed the related wage deduction. Our pages on Letter 105-C and appealing an ERC disallowance cover the mechanics.
- Claim paid, and it should not have been. The credit has to come back, with interest and potentially penalties. The IRS's page links to penalty relief information specific to ERC claims.
The honest first question
Before anything is filed, appealed or defended, the question is whether the claim was eligible under the IRS's own three tests. That is a factual question about your business in 2020 and 2021: was there a government order that suspended operations, in which quarters, and to what extent; what were gross receipts quarter by quarter against the comparison periods; was the business a recovery startup. The promoter who filed the claim often never asked those questions, which is why the IRS's list of warning signs exists.
If the claim holds up, the stage-appropriate response is to document it and defend it. If it does not, the stage-appropriate response is the withdrawal program while it is still available, or a negotiated repayment if it is not. Pretending an ineligible claim is eligible, through an audit and an appeal, is the most expensive path on this page, and it ends in the same repayment plus the cost of the fight.
What Clarity does with an ERC claim
We start with the eligibility question and we answer it before we advise anything. That means the government orders that applied to your location and industry, quarter by quarter, and the gross receipts figures against the IRS's required decline, from your own books. We have had clients arrive certain they qualified because a promoter said so, and leave with a clear picture of which quarters held up and which did not. That picture decides everything after it.
- If the claim is unpaid and weak, we withdraw it under the IRS's program while that door is open.
- If the claim is sound and under review or audit, we assemble the documentation the IRS is asking for and handle the examiner under a power of attorney.
- If the claim was disallowed and should not have been, we prepare the appeal on the eligibility facts, within the window on the letter.
- If the credit was paid and has to come back, we resolve the repayment on terms the business can carry, and we address the income tax side the IRS says a disallowance can affect.
The investigation fee is $495 for an individual and $695 for a business. For an ERC matter it covers the eligibility review against the IRS's tests, the transcript pull, and a written recommendation for the stage you are at, and it comes with a 15-day money-back policy from the date you sign. You have the written agreement before anything is charged.
The hard part, stated plainly
The hard part is that many of these claims were never eligible, the businesses that filed them were told they were, and the money has often already been spent. The IRS's page says plainly that those incorrectly receiving the credit could have to repay it with substantial interest and penalties. There is no version of this page that makes an ineligible claim eligible. What can be managed is how much it costs to unwind, and that depends almost entirely on how early the business faces the question.
The second hard part is the promoter fee. It was usually a percentage of the credit, it was paid, and it is not coming back from the IRS. A business repaying an ineligible ERC repays the whole credit, not the credit less what the promoter kept.
When you do not need anyone
If you filed the claim yourself, you have the government orders and the quarterly receipts that support it, and the IRS has asked for documentation, gather it and send it. If you know the claim was not eligible and it has not been paid, the IRS's withdrawal program is designed to be used directly, and its page walks through it.
Where a review earns its fee: a promoter filed the claim and you are not sure it qualified, the claim is under audit, a Letter 105-C has arrived and the appeal window is open, the credit was paid and spent, or the disallowance has knocked on to your income tax return. Those are the cases where the eligibility work and the stage decide the cost.
ERC Claim Questions, Answered
What is the Employee Retention Credit?
The IRS describes it as a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic, with requirements that differ by period. It applied to qualified wages paid after March 12, 2020 and before January 1, 2022, and the IRS says it is not available to individuals.
Who was eligible for the ERC?
The IRS says that generally the businesses and tax-exempt organizations that qualify are those that were suspended by a government order due to the pandemic during 2020 or the first three calendar quarters of 2021, or experienced the required decline in gross receipts in those periods, or qualified as a recovery startup business for the third or fourth quarter of 2021.
Can I withdraw an ERC claim?
The IRS says employers that submitted an ineligible claim can avoid future issues such as audits, repayment, penalties and interest by withdrawing it. The withdrawal program can be used if the ERC has not been paid yet, or if you received a check but have not cashed or deposited it.
What is Letter 105-C for the ERC?
It is the letter the IRS uses to disallow an ERC claim. The IRS says that if it disallowed your claim with Letter 105-C and you disagree, you may request an administrative appeal, review by the IRS Independent Office of Appeals, or file suit. It also notes that a disallowance may create issues on the income tax return that need resolving.
How many ERC claims is the IRS still working on?
As of the week ending August 1, 2026, the IRS reported approximately 17,300 remaining claims: 2,300 under review, 2,900 pending payment or disallowance, 4,400 under audit, 6,100 awaiting review of disallowance responses, and 1,600 with the Independent Office of Appeals. The IRS says it updates the page monthly.
What if a promoter told me every business qualifies?
The IRS lists that claim among the warning signs of an improper ERC claim. It says eligibility is complex and based on each business's facts and circumstances, that promoters may lie about the requirements, and that those incorrectly receiving the credit could have to repay it along with substantial interest and penalties.
Results vary based on individual facts and circumstances. Whether an ERC claim was eligible depends on the business's facts for each quarter, and no specific outcome is guaranteed. This page is general information about Employee Retention Credit claim problems, not tax or legal advice.
Related Services: 941 Payroll Tax Debt · IRS Audit Representation · Penalty Abatement · IRS Payment Plans · or return to All Tax Relief Services.
Where the IRS's remaining ERC claims stood, week ending August 1, 2026
| Stage | Claims |
|---|---|
| Under review | 2,300 |
| Pending payment or disallowance | 2,900 |
| Under audit | 4,400 |
| Awaiting review of disallowance responses | 6,100 |
| With the Independent Office of Appeals | 1,600 |
| Total remaining | About 17,300 |
Figures from IRS, Employee Retention Credit.
“The IRS is concerned about a large number of improper ERC claims and is closely reviewing tax returns that claim the credit. The IRS urges taxpayers to review their claims and quickly resolve incorrect ones.”
— IRS, Employee Retention Credit
The passage quoted above is from IRS, Employee Retention Credit.