When an ERTC audit decision shows up in the mail, it can change everything in a moment. One IRS letter/notice can mean a smaller refund, a denied quarter, or a new balance you never expected. And the toughest part is not knowing what to do next or how much control you still have in the process.
The truth is, an audit decision isn’t the end of the road. You still have rights, you still have options, and you’re allowed to ask the IRS for a second review if you believe something doesn’t line up with your records.
So this blog post walks you through what that looks like step-by-step, in a simple way, so you can understand how the ERTC audit decision appeal process works and what actions actually make sense from here.
What is the ERTC Audit Process?
The ERTC audit decision appeal process is basically the way the IRS double-checks a business’s Employee Retention Tax Credit claim to make sure everything was done correctly. Since no one can file new claims anymore, the IRS is only looking at claims that were already submitted. The whole point is to confirm that the business was actually eligible and that the numbers make sense.
Here’s how the process usually moves:
1. The Claim Gets Picked for Review
The IRS may flag a claim because the refund looks large, something doesn’t match their records, or it just stands out in a way that needs a closer look. That’s usually the moment the audit starts.
2. The IRS Sends a Letter
You’ll get a written notice in the mail telling you that your ERTC claim is under audit. This letter basically confirms that the review has officially begun and that the IRS will be asking for information.
3. The IRS Asks for Documents
After that, the IRS will request records like payroll reports, wage details, proof of shutdown orders, financial statements, and anything else that supports eligibility. They want to see how you calculated the credit and whether the rules were followed.
Note that sometimes the IRS will notice that certain payroll returns for those quarters weren’t filed or are missing from their system, and that can slow things down because the agency needs those filings on record before they can finish reviewing the claim.
4. The IRS Reviews and Compares Everything
Once they have the documents, the IRS checks your claim against its own data. They look at eligibility, qualified wages, how PPP was handled, and whether the timelines and numbers line up with the rules for that quarter.
5. The IRS Sends a Decision
When the review is done, the IRS will mail a decision. It might say the claim is accepted as is, adjusted to a lower amount, or denied. The notice also explains what changed and what your options are if you don’t agree.
Because these reviews are detailed and many claims go back to 2020 and 2021, the ERTC audit decision appeal process can take months. So it’s normal for the audit to move slowly while the IRS works through everything.
Why You Might Need to Appeal an ERTC Audit Decision?
When the IRS completes an ERTC audit, they send a written decision explaining what they reviewed and what they changed. Sometimes that decision doesn’t match your records or how you calculated the credit. In those situations, an appeal gives you a formal way to ask the IRS to review the case again before anything becomes final.
Here are the real reasons an appeal may be needed:
- The IRS reduced the refund based on wage or calculation adjustments. This can happen if the IRS believes the wages you claimed were not fully qualified or were calculated incorrectly.
- The IRS denied eligibility for one or more quarters. The IRS may decide you did not meet the shutdown or revenue-decline rules, and you may disagree based on your records.
- The IRS applied PPP interaction rules in a way you believe is incorrect. Sometimes the IRS removes wages they think overlap with PPP forgiveness, and you may have documentation proving otherwise.
- The IRS relied on missing or incomplete documentation. If the IRS made its decision without all the records you actually have, you may need to appeal so those documents can be reviewed.
- The decision creates a new balance due, penalties, or interest you believe are not accurate. An appeal can prevent incorrect charges from being finalized.
At this stage, many businesses look for professional support because responding to the IRS on your own can be time-sensitive and technical.
This is where audit defense comes in. It’s simply a professional representation during the audit or after the IRS issues a decision. Mr. Michael Sullivan can step in, communicate with the IRS for you, and help you reply in a clear, organized way while the case is still active.
How to Appeal an ERTC Audit Decision?
If you don’t agree with the IRS’s decision on your Employee Retention Tax Credit audit, you’re allowed to appeal it. An appeal basically gives you a chance to ask the IRS to review your claim again, with your explanation and documents laid out clearly. It’s a formal way to keep your refund options open, and it lets you do that without jumping straight into court or anything legal right away.
Here’s how the ERTC audit decision appeal process typically works:
Step 1: Review the IRS Notice and Decision
When the IRS sends a letter such as Letter 106‑C or Letter 105‑C, it will tell you the decision and your rights to appeal. This letter identifies the tax period, the reason for the disallowance, and how you can respond.
Before doing anything else, read the notice carefully and note any deadlines, especially the two-year window to take further action.
Step 2: Prepare Your Formal Appeal Request
If you want to appeal, you’ll need to send a written statement explaining why you believe your claim is correct, along with supporting documentation. The IRS recommends submitting this request as soon as possible, ideally within 30 days of receiving the decision letter, to preserve your rights.
Step 3: Submit Supporting Documentation
Along with your written explanation, include records that directly address the IRS’s reasons for disallowance. For example, if the IRS said you didn’t have a qualified government-ordered suspension, send the order, payroll logs, records of shutdown or decline in gross receipts, and any worksheets you used.
Step 4: Wait for the IRS Review or Transfer to Appeals
After you submit your request, the IRS will review your documents and explanation. They may either allow part or all of your claim, request more info, or forward the case to the Independent Office of Appeals (Appeals) if they don’t agree. This stage can take months.
Step 5: Work With the Appeals Officer
Once your case reaches Appeals, you may be asked for further documentation or to meet (in person, by phone, or by video) with an Appeals officer. This is your chance to present your facts clearly, negotiate, or reach a settlement before resorting to court. Appeals is independent and aims to resolve disputes without litigation.
Step 6: Consider Your Final Options if Appeal Is Unsuccessful
If Appeals doesn’t give you the outcome you believe you deserve, you still may have the option to file a lawsuit in court, for example, in U.S. District Court or the U.S. Court of Federal Claims, but you’ll need to do so within the deadline (typically two years from the date on the original decision letter) unless you signed an extension.
In some situations, if you have new documents or information that the IRS did not review earlier, you may be able to request what’s called audit reconsideration. This gives the IRS a chance to reassess the decision based on the updated records. Michael Sullivan handles these requests as well and can help you understand whether reconsideration is a realistic option in your case.
Moving Forward With the Right Guidance After an ERTC Audit Decision!
Once the IRS decides on an ERTC audit, your next steps will involve timing, paperwork, and your response. Knowing what the IRS expects and your options beforehand will be beneficial if you're unhappy with the outcome or considering an appeal.
This is exactly where Mr. Michael Sullivan can be of great assistance. His professional background as a former IRS agent and IRS tax specialist is coupled with thousands of cases and 10 years of IRS service, with 42 years in private practice. He is well-equipped to guide you through the decision-making process, interpret the IRS review, and prepare a solid response backed by the necessary documents.
In case you want professional assistance before alternative decision-making, get in touch with Mr. Michael Sullivan today.
FAQs
The ERTC audit decision appeal process is when the IRS takes a closer look at your Employee Retention Tax Credit claim to make sure everything was correct. In this review, the IRS checks whether you were actually eligible and whether the wages and calculations you used were accurate. It starts with a notice in the mail and ends with a written decision that either approves the credit, reduces it, or denies it.
If you disagree with the IRS decision, you can file an appeal by sending a written request. Here is the basic flow:
Step 1: Read the decision letter carefully and note the deadlines mentioned in it.
Step 2: Write a clear statement explaining why you believe the IRS decision is incorrect.
Step 3: Attach documents that support your position, such as payroll records or shutdown proof.
Step 4: Mail your appeal to the address listed in the IRS letter.
Once the IRS receives your appeal, the case may stay with the original examiner or be forwarded to the Independent Office of Appeals. You do not need a special form to start the appeal, but your written statement must be detailed enough for the IRS to review. Filing the appeal on time is important because missing the deadline can limit your options.
The documents you need depend on why the IRS changed or denied your claim. In most cases, you will want to gather records that directly support eligibility and the wages you claimed. Here are the common items businesses use:
Payroll reports and wage summaries.
Records showing a shutdown or full or partial suspension.
Gross receipts statements for revenue-drop claims.
Proof of how PPP wages were separated from ERTC wages.
Worksheets or calculations are used to compute the credit.
Any government orders tied to your business restrictions.
It helps to organize these documents clearly so the IRS can match each item to the point you are appealing. The stronger and more direct your records are, the easier it becomes for the IRS to review your claim again.
There is no fixed timeline, but most ERTC appeals take several months. The IRS often needs extra time because each quarter has to be reviewed on its own, and many cases from 2020 and 2021 are still moving through the system. The timeline also depends on how quickly the IRS receives and processes your documents. In some situations, the IRS may request additional information before making a decision, which can add more time. So it’s normal for the process to feel slow, and checking your mail regularly is important because all updates come in writing.
There are still alternative courses of action when the IRS denies your appeal. The subsequent move is usually determined by how strong your documentation is and the strength of your conviction in your stance. Here are the steps that most companies take:
Review the denial letter closely to understand the reason.
Gather any documents the IRS did not review or did not receive.
Speak with a tax professional to understand your legal options.
Decide whether you want to take the case to court.
If you choose to pursue the case further, you may be able to file a lawsuit in U.S. District Court or the U.S. Court of Federal Claims. There is a strict deadline for this, so acting within the timeframe listed in the IRS letter is important. Even though a denial can feel final, it does not automatically mean the issue is closed unless you choose not to take the next step.
