CP 263 Notice
RejectionYour tax credit claim was rejected (partially or completely)
Federal Tax Matters
ERC Disallowance Notices
Received an IRS notice denying your Employee Retention Credit claim? Don’t give up.
The basics
Understanding ERC Disallowance Notices
Many legitimate ERC claims are initially denied due to documentation issues or IRS processing errors. Professional representation can help you fight for the credits you rightfully earned.
For comprehensive ERC information, visit our dedicated website: ERCAuditTaxAttorneys.com. We also handle related ERC audits and IRS compliance checks.
Immediate Action Required
ERC disallowance notices typically give you only 30 days to respond. Missing this deadline can permanently forfeit your right to the credit, even if your original claim was completely valid.
30 days to respond From the date of the notice to file your response
Know the notice
Types of ERC Disallowance Notices
The letter you receive tells you where your claim stands — and how little time you may have to act.
Letter 6419
Info requestThe IRS needs more paperwork from you
Letter 105C
Final noticeFinal warning before your claim gets denied
Audit Notices
AuditFull investigation of your tax credit claim
Why claims get denied
Common Reasons for ERC Disallowance
Understanding why the IRS denied your claim is crucial for crafting an effective response. Most denials fall into several common categories:
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PPP Loan Issues
You used money from a forgiven PPP loan to pay your employees, so you can’t also claim the tax credit for those same wages
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Full Suspension Documentation
You didn’t provide enough proof that government orders actually forced you to close or reduce your business operations
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Significant Decline Test
The IRS disagrees with how you calculated whether your sales dropped enough to qualify (they think your math is off)
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Related Group Issues
Problems figuring out if multiple related businesses should be counted together or separately for the credit
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Wage Calculations
Mistakes in calculating which employee wages qualify, health insurance costs, or how many employees you had
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Documentation Deficiencies
You didn’t send enough documents to prove you actually qualified for the credit
Suspension disputes
Government Order Challenges
Many denials relate to the IRS’s interpretation of whether government orders constituted a “full or partial suspension” of business operations. The IRS has taken increasingly narrow positions on:
Essential Business Status
IRS may claim essential businesses weren’t truly suspended.
Partial Suspensions
Disputes over whether capacity restrictions or operational changes qualify.
Supply Chain Disruptions
IRS challenges to suspension claims based on supplier impacts.
Nominal Impact Argument
IRS position that minor operational changes don’t qualify.
You have options
Fighting Your ERC Disallowance
A disallowance notice is not the end of the road. With proper representation and documentation, many denied claims can be successfully appealed or resolved through administrative procedures.
Your first moves after a notice
Move quickly and deliberately:
- Submit detailed response within 30-day deadline
- Request conference with IRS examiner
- Gather additional supporting evidence
- Organize records to address specific IRS concerns
Independent review
Appeal Rights
If the IRS upholds the disallowance after your initial response, you have the right to appeal to the IRS Appeals Office for independent review of your case.
IRS Appeals Office
Independent administrative review by IRS Appeals for ERC disallowance cases.
Fresh Perspective
Appeals officers are independent from the examining function and can consider settlement.
Conference Rights
Opportunity to present your case directly to Appeals and negotiate resolution.
Settlement Authority
Appeals has authority to resolve cases based on litigation hazards and administrative efficiency.
Your case, built to win
Building Your Defense Strategy
Successfully challenging an ERC disallowance requires a comprehensive approach that addresses both the legal and factual issues in your case.
Documentation Strategy
Assemble records that directly answer the IRS’s concerns:
- Government orders and their specific impacts on your business
- Detailed operational changes and capacity restrictions
- Quarterly revenue calculations and comparisons
- PPP loan documentation and wage reconciliations
- Payroll records and qualified wage calculations
- Health plan cost documentation
- Business records showing operational impacts
- Industry guidance and compliance documentation
Legal Arguments Framework. Your response should address the specific legal standards for ERC eligibility and challenge the IRS’s interpretation where appropriate:
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Statutory Interpretation
Cite legislative history and congressional intent behind ERC provisions.
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Regulatory Guidance
Reference favorable IRS guidance, FAQs, and published positions.
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Case Law
Utilize court decisions and precedents supporting your position.
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Factual Development
Present clear timeline of events and business impacts.
If the disallowance is upheld
Consequences of Disallowance
Understanding what happens if your ERC claim is ultimately disallowed is important for making informed decisions about how aggressively to fight the denial.
Repayment and Penalties. If the disallowance is upheld, you’ll be required to repay the ERC amounts plus interest. The IRS may also assert penalties for substantial understatement of tax or other violations.
Financial Impact
Principal Repayment
Full amount of disallowed ERC must be repaid.
Interest Charges
Interest accrues from the date the credit was originally claimed.
Potential Penalties
20% penalty for substantial understatement or other violations.
Tax Liability Adjustments
Income tax consequences if wages were previously deducted.
Settlement Opportunities. Even in challenging cases, there may be opportunities to negotiate partial settlements or resolve disputes for less than the full disallowed amount.
The stakes are high
Why Professional Representation is Essential
ERC disallowance cases involve complex technical issues, tight deadlines, and high financial stakes. Professional representation significantly improves your chances of a successful outcome.
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Immediate Response
Rapid analysis of disallowance notice and timely filing of response.
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Case Development
Comprehensive review of records and development of defense strategy.
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IRS Negotiations
Direct communication with IRS examiners and appeals officers.
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Litigation Support
Preparation for Tax Court or federal court proceedings if necessary.
Experience you can trust
Fight for the credits you rightfully earned
We understand the ERC program’s complexities and the IRS’s evolving enforcement positions. Our experience handling ERC disallowances allows us to quickly identify the strongest arguments for your case and develop effective strategies for challenging improper denials.
We are licensed to practice in Maryland and the District of Columbia. For matters in other jurisdictions, we will engage with qualified local counsel to facilitate representation.
Don’t let the IRS take away credits you rightfully earned. Time is critical – contact us immediately if you’ve received an ERC disallowance notice.