The IRS has been aggressively reviewing Employee Retention Credit claims filed during and after the pandemic, and thousands of Texas businesses are now receiving formal disallowance notices including Notice CP320B. If you received one of these letters, time is critical. Understanding what the notice means, your options, and how to respond correctly can mean the difference between keeping a legitimate credit and facing back taxes, penalties, and interest.
The Employee Retention Credit was a pandemic-era refundable payroll tax credit created by the CARES Act. Eligible employers could claim credits up to $5,000 per employee in 2020 and $21,000 per employee in 2021. The credit attracted substantial fraud, prompting multiple IRS compliance campaigns. For official eligibility requirements, see the IRS ERC Resource Center.
Notice CP320B is a formal disallowance notice informing you the IRS has rejected all or part of your ERC claim. Common reasons include: the business was not subject to a government-ordered suspension of operations, the business did not experience a significant decline in gross receipts in the claimed quarters, or wages claimed were also used for PPP loan forgiveness a prohibited double-benefit.
The notice advises you of your rights, including the right to appeal the disallowance to the IRS Independent Office of Appeals within 30 days of the notice date.
If the credit was not properly supported, paying back the refund received plus interest is the cleanest resolution. Interest accrues from the date the refund was issued at the current federal underpayment rate.
If you believe the disallowance is incorrect, file a written protest within 30 days. The protest must include your name, address, tax years involved, specific items disputed, reasons for disagreement, and the legal and factual basis for your position. IRS Appeals resolves a significant percentage of ERC disputes at the administrative level without litigation.
For businesses that received improper credits but want to resolve proactively, the IRS ERC Voluntary Disclosure Program allows repayment of 80 percent of the credit received, with the IRS forgiving the remaining 20 percent plus interest and penalties, but only when disclosed before the IRS opens an examination.
If your claim is based on a government-ordered suspension, gather copies of the specific government orders that limited your operations. Generic stay-at-home orders that did not directly restrict your specific business type are often insufficient. Restaurant owners, hospitality businesses, and event venues that faced direct capacity restrictions generally have the strongest documentation.
If based on the gross receipts decline test, gather quarterly gross receipts for 2019, 2020, and 2021. A 50 percent decline in 2020 or a 20 percent decline in 2021 compared to the same quarter in 2019 qualifies. Payroll records showing the specific employees and wages claimed are also essential.
Organized financial records are the backbone of any ERC appeal. If your books are disorganized, start with our Bookkeeping Services Texas team to reconstruct accurate records before engaging the IRS. Clean records have resolved many ERC disputes at the appeals stage without litigation.
When the IRS disallows an ERC claim, the balance owed is subject to the standard federal underpayment interest rate. Accuracy-related penalties of 20 percent or fraud penalties of 75 percent may apply depending on the nature of the error. For businesses that also face current-year payroll tax obligations alongside the ERC repayment, see our Payroll Management Texas guide to ensure ongoing compliance while resolving the prior-year dispute.
Our team reviews original claims against current IRS guidance, gathers supporting documentation, prepares formal appeals, and represents clients through the Appeals process. We coordinate with legal counsel when Tax Court petitions become necessary. Contact AccountingServices.com for a confidential ERC review. Businesses also managing current estimated tax obligations while resolving ERC disputes can review our IRS Quarterly Estimated Tax Payments guide to stay current on all outstanding federal obligations simultaneously.
You have 30 days from the notice date to file a written protest with IRS Appeals. See the IRS ERC Resource Center for current procedural updates, and contact AccountingServices.com immediately if you are within the 30-day window.
The IRS holds the business owner responsible for the accuracy of filings regardless of who prepared them. If your preparer has disappeared or is under investigation, consult a qualified CPA or tax attorney immediately to assess your exposure before the 30-day protest window closes.
Yes. The IRS has three years from the due date of the return or the date filed to assess additional taxes. Substantial omissions extend this to six years, and fraud has no limitation. See the IRS ERC Resource Center for the current enforcement timeline and examination priorities.
Wages used for PPP forgiveness cannot also be used for ERC this double-counting is the most common disallowance reason. If your claim has this issue, the IRS ERC Voluntary Disclosure Program may be the most cost-effective resolution path before an examination is opened.
An ERC repayment must be recorded as a reduction of the payroll tax deduction or as a separate expense in the year repaid, depending on accounting method. Our Bookkeeping Services Texas team handles these entries correctly to avoid distorting your income statements.
Yes. An ERC audit often prompts the IRS to review related payroll filings. Our Payroll Management Texas guide covers how to ensure your 941 filings, W-2s, and payroll deposits are audit-ready during any IRS examination. Also review the TWC portal at Texas Workforce Commission for your current unemployment tax account status.
Resolving an ERC dispute does not pause other tax obligations. The June 15 Q2 estimated tax deadline still applies. See our IRS Quarterly Estimated Tax Payments guide and pay through EFTPS to keep current while the ERC matter is being resolved.
