Thousands of Texas small businesses that filed Employee Retention Credit (ERC) claims are now receiving IRS Notice CP320B a formal notice of disallowance. This is one of the most consequential IRS enforcement actions of 2026, and the deadline to respond is tight.
If you or your business received a CP320B notice, do not panic but do not ignore it either. You have legal rights, and there are clear steps you can take to protect your refund claim or appeal the IRS’s decision.
The Employee Retention Credit was a pandemic-era refundable payroll tax credit designed to help businesses retain employees during COVID-19-related disruptions. Eligible employers could claim up to $26,000 per employee across the 2020 and 2021 tax years.
However, the IRS has identified widespread improper ERC claims many filed by aggressive third-party promoters who charged large contingency fees and incorrectly qualified businesses that did not meet eligibility requirements.
The IRS has published detailed ERC eligibility guidance to help businesses evaluate their claims.
IRS Notice CP320B is a formal Claim Disallowance Notice. It informs you that the IRS has reviewed your ERC claim and determined it is not eligible for the refund you claimed. The notice will specify the tax period(s) affected and the amount being disallowed.
Upon receiving CP320B, your clock starts ticking. You generally have 30 days from the date of the notice to file a formal appeal or protest with the IRS Office of Appeals, or to sign and return Form 5750 to agree with the disallowance.
If you believe your ERC claim was legitimate, you can file a written protest with the IRS Independent Office of Appeals. This must include a detailed statement of facts, the legal basis for your eligibility, and supporting documentation such as payroll records, bank statements, and evidence of business disruption.
For claims over $25,000, you are entitled to a face-to-face or virtual conference with an IRS Appeals Officer. This process is independent of the IRS examination division and is designed to resolve disputes without litigation.
In some cases, you and the IRS may enter into a Form 907 agreement to extend the assessment period, allowing additional time for documentation review. This is particularly useful when you have documentation in progress or are gathering third-party records.
If your administrative appeal is unsuccessful, you may have the right to file a refund lawsuit in federal court. This route requires specialized legal and tax expertise and is typically warranted for larger ERC claims.
Strong documentation is your best defense against an ERC disallowance. For each quarter you claimed the ERC, you should be able to produce payroll records showing qualifying wages, Form 941 or 941-X filings, financial records demonstrating the required revenue decline (if applicable), and government orders that caused a full or partial suspension of your business operations.
Responding to IRS Notice CP320B without professional guidance is extremely risky. At FAS Accounting Services, our tax professionals have deep experience handling IRS correspondence, ERC claim defense, and audit representation for Texas small businesses.
We will review your original ERC filing, assess the strength of your claim, prepare a comprehensive written protest if warranted, and represent you throughout the IRS appeals process. Time is critical contact us immediately if you have received a CP320B notice.
IRS Notice CP320B is a formal claim disallowance notice informing a taxpayer that the IRS has rejected their Employee Retention Credit (ERC) claim. Recipients have approximately 30 days to file a formal protest with IRS Appeals or agree to the disallowance.
Yes. You have the right to appeal a CP320B disallowance by filing a written protest with the IRS Independent Office of Appeals. For claims over $25,000, you may also request an in-person or virtual conference with an Appeals Officer.
You need payroll records showing qualifying wages, Form 941 filings for the relevant quarters, financial statements showing revenue decline (if applicable), and evidence of government orders that caused business disruption such as local or state shutdown orders.
Form 907 is an IRS Agreement to Extend the Time to Bring Suit. It can be used during an ERC dispute to extend the assessment period, giving you additional time to gather documentation and work toward an administrative resolution before considering litigation.
You generally have 30 days from the date printed on the CP320B notice to file a protest or agree to the disallowance. Missing this deadline can forfeit your appeal rights. Contact a qualified Texas tax professional immediately upon receiving this notice.
