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An ERC dispute can leave a business stuck between waiting for an IRS response and deciding whether to take legal action. A denied claim does not always end the matter, but businesses need to understand why the IRS rejected the refund and what options remain. The records behind the claim, the reason for the denial, and the timing of the response can all affect what happens next.
Employee Retention Credit Refund Litigation may give a business another way to challenge an IRS decision when other efforts have not resolved the dispute. Before filing a lawsuit, however, it is important to review the claim, understand the denial, and consider whether the available records support the requested refund. The IRS says taxpayers who disagree with an ERC disallowance may request an administrative appeal or file suit.
Understanding the IRS Decision
Start by reading the IRS notice carefully. A Letter 105-C usually explains why an ERC claim was denied, lists the tax period involved, and gives information about appeal rights and the deadline for filing a lawsuit.
The reason for the denial matters. The IRS may question whether the business met the eligibility rules, filed the claim on time, or had enough records to support the amount claimed. Knowing the exact issue can help the business decide how to respond. Check the notice for any specific instructions from the IRS. Keep the notice with the rest of your ERC records so you can refer back to it later.
Reviewing the Claim
Before considering litigation, a business should take another look at the ERC claim itself. Review the payroll records, employment tax returns, wage calculations, financial information, and other documents used to support the credit.
It is also worth checking whether the business can explain how it met the requirements for the specific period claimed. The rules were different depending on the period, so a claim should be reviewed based on the facts and requirements that applied at that time. A careful review can uncover missing records or calculation problems before they become bigger issues during a legal dispute.
Looking at the Available Evidence
An ERC dispute may come down to documentation. A business should keep copies of its original claim, IRS notices, payroll records, calculations, correspondence, and other records related to the credit.
If a third party prepared the claim, keep its work papers and communications as well. These materials may help explain how the claim was prepared and why the business believed it qualified. Having organized records can also make it easier for an attorney to spot weaknesses in the IRS position or problems within the claim itself.
Considering an IRS Appeal
Litigation is not always the first option after an ERC claim is denied. A business that disagrees with the IRS can request review by the IRS Independent Office of Appeals. The IRS says taxpayers can request an appeal when responding to a disallowance and may also request one within the two-year period following the disallowance letter.
An appeal may resolve the disagreement without a court case. However, businesses should not assume that an appeal automatically pauses the deadline for filing a lawsuit.
Paying Attention to the Deadline
Timing is one of the biggest issues in an ERC dispute. The IRS generally gives taxpayers two years from the date of the original disallowance letter to file a refund suit. Requesting an appeal does not automatically extend that period.
The IRS introduced a process in 2026 that may let some taxpayers ask for more time using Form 907 if they meet certain conditions. Businesses nearing the end of the two-year period should check their notice and deadline instead of assuming they have more time.
Moving Forward With an ERC Dispute
A denied ERC refund does not always mean the claim is over. Businesses may still have administrative or legal options, but they need to follow the rules and meet the required deadlines.
Review the IRS decision, gather the records that support the claim, and learn about the available appeal and litigation options. If a business believes the IRS wrongly denied a valid refund, an attorney familiar with ERC disputes can review the claim and explain what steps may be available.