IRS Letter 105C: Claim Disallowance and How to Appeal

IRS Letter 105C is the agency’s formal notice that it has fully denied a refund or credit you claimed, and the date printed on the letter starts a two-year clock to challenge that decision in federal court. Miss that window without filing suit or signing a written extension, and the money is gone for good, even if you were right on the merits. The letter names the tax period, the amount denied, and the IRS’s reasoning. Your job now is to respond in a way that preserves every remedy available to you.

What the Letter Actually Says

Letter 105C is not a proposal or a warning shot. The Taxpayer Advocate Service calls it “your legal notice that the IRS is not allowing the credit or refund you claimed.”¹ It can arrive after an amended return on Form 1040-X, a standalone refund request on Form 843, or an adjusted employment tax return.

Three items on the letter matter immediately: the reason for the denial, the tax period, and the letter date. The date controls everything else, because the statute of limitations for suing runs from it.² Write it on a calendar before you do anything else.

105C vs. 106C

If your letter is numbered 106C, the IRS partially denied your claim rather than fully denying it. Some portion was allowed, some was not.³ Your response options are similar, but the disputed amount will be different, and that amount decides whether you need a formal protest or a shorter small case request.

A Disallowance Is Not a Math Error Notice

The IRS sometimes changes returns through a “math error” process instead of issuing a formal disallowance. The rights are very different. A math error notice gives you only 60 days to request that the IRS undo the adjustment; miss that window and the change becomes final with no Tax Court recourse. Letter 105C gives you two years to appeal or sue. If any IRS correspondence adjusts your return, check which one it is before responding.

Why the IRS Denies Claims

Most disallowances come down to four reasons, and the letter will point at one of them. Reading the stated reason carefully tells you what evidence you need to gather.

Insufficient documentation. Refundable credits like the Earned Income Tax Credit or Child Tax Credit fail when the IRS cannot verify residency, identification numbers, or expense receipts.
Filing outside the statutory window. A refund claim must generally be filed within three years from the date you filed the original return or two years from when you paid the tax, whichever is later. Claims filed after that deadline cannot be revived.⁴
Eligibility failures. The IRS concludes you did not meet the legal requirements for the credit or deduction.
Discrepancies with third-party records. The amounts on your claim do not match what employers, banks, or clients reported to the IRS.

A large share of recent 105C letters involve the Employee Retention Credit. The IRS has flagged patterns it considers ineligible: essential businesses that stayed fully operational and had no qualifying decline in gross receipts, claims that cannot tie a government order to a partial or full suspension of operations, claims resting only on supply chain disruptions, and claims from businesses that had no employees or did not exist during the eligibility period. The agency has also stressed that a government order means an actual order in effect during the credit period, not guidance or a recommendation.⁵

Two Deadlines, Two Different Clocks

This is where taxpayers most often lose their claims. Letter 105C creates two separate time pressures, and they do not interact the way people assume.

The first is the 30-day response window printed on the letter. It is not a hard legal deadline. The IRS frames it as a suggestion: “We generally ask that you dispute the disallowance within 30 days to help protect your two-year timeline to request an appeal or file suit.”² Missing 30 days does not kill your claim. Responding promptly does give the examining office and Appeals more room to work the case before the real deadline hits.

The second is the two-year statute of limitations for filing suit, running from the date the IRS mailed the disallowance letter.⁶ This clock does not pause while an appeal is pending. If the two years run out without a lawsuit filed or a written extension in place, the IRS is legally barred from issuing the refund, even if Appeals has by then agreed with you.²

Building Your Response

Start from the denial reason stated in the letter. Every document you gather should address that reason directly. If the IRS says you lacked proof of eligibility, produce the records that establish it. If timing is the issue, pull the postmark receipt, filing confirmation, or extension. General tax records are not helpful. The examiner reviewing your response is looking at the narrow issue named in the letter.

Organize the evidence so each document connects to a specific line item. Receipts, canceled checks, bank statements, third-party invoices, and any prior IRS correspondence about the same period all belong in the packet. A response that dumps a stack of documents on the examiner without explaining what each one proves is a response that gets set aside.

How to Submit It

You can mail the protest and supporting documents to the IRS office listed on the letter. Use certified mail with return receipt requested so the mailing date and receipt date are both documented.

The IRS also accepts responses through its Document Upload Tool at irs.gov. You will need either the access code printed on your letter or the letter number (105C), plus your name as it appears on the notice and your SSN, ITIN, or EIN.⁷ Do not use the upload tool to submit an amended tax return. Returns cannot be processed that way.

Small Case Request or Formal Protest

The size of the dispute determines what kind of protest you file. The dividing line is $25,000 in total tax, penalties, and interest for each tax period.⁸

At or below that threshold, a brief written statement identifying the changes you disagree with and explaining why is enough. No special format is required.

Above $25,000, the IRS requires a formal written protest containing specific elements:⁸

Your full name, address, and daytime phone number.
A statement that you want to appeal the IRS findings to the Appeals office.
A copy of Letter 105C.
The tax periods involved.
A list of each disputed item with your reasons for disagreeing.
The facts supporting your position on each item.
The legal authority you rely on, if any.
A signed penalties-of-perjury statement: “Under the penalties of perjury, I declare that I examined the facts stated in this protest, including any accompanying documents, and, to the best of my knowledge and belief, they are true, correct, and complete.”

Whichever form your protest takes, ask explicitly that the case be forwarded to the IRS Independent Office of Appeals if the examiner does not reverse the disallowance. Without that request, the case can stall with the examining office.

Appeals and Protecting the Two-Year Deadline

The office that issued the disallowance reviews your response first. If it agrees with you, the claim gets allowed. If not, the case moves to the Independent Office of Appeals, a separate arm of the IRS set up to give an impartial review.⁹ Appeals officers can settle based on the “hazards of litigation,” meaning they weigh what would likely happen in court. That gives you more negotiating room than you had with the original examiner.

You do not have to handle any of this yourself. An attorney, CPA, or enrolled agent can represent you before the IRS once you file Form 2848, Power of Attorney and Declaration of Representative.¹⁰

Form 907: Extending the Deadline in Writing

If the appeal is still moving as the two-year deadline approaches, you and the IRS can agree in writing to extend the filing period. The statute allows the limitation to “be extended for such period as may be agreed upon in writing between the taxpayer and the Secretary.”⁶ The IRS uses Form 907, Agreement to Extend the Time to Bring Suit, which sets a new expiration date and asks for a statement of the issues.¹¹ Signing Form 907 is often what saves a claim when the appeal takes longer than expected.

A different form to watch for is Form 2297, Waiver of Statutory Notification of Claim Disallowance. Signing it waives the IRS’s obligation to send a formal disallowance notice and starts the two-year clock from the date of the waiver rather than the date a letter would have been mailed.¹² Do not sign it without understanding that it immediately begins the countdown.

Filing Suit in Federal Court

If the administrative process does not resolve the claim, your remaining remedy is a lawsuit. You can file in the U.S. District Court with jurisdiction over your location or in the U.S. Court of Federal Claims in Washington, D.C.¹ Both hear refund cases, and both require that a claim first have been filed with the IRS, which the 105C confirms you did.¹³

One rule catches taxpayers off guard: under Flora v. United States, the full assessed tax must be paid before a refund suit can be filed in either court. Because Letter 105C involves money you say was overpaid, the tax is often already paid. If any balance remains, though, the court will not hear the case until it is satisfied.

Tax Court is not available for a claim disallowance. Tax Court jurisdiction covers notices of deficiency, where the IRS says you owe more, not refund denials, where the IRS refuses to return money you say was overpaid. This surprises people who have used Tax Court in other disputes.

What Happens If You Do Nothing

The disallowance becomes final. The refund or credit is permanently denied. Once two years from the letter date pass with no lawsuit and no signed Form 907 extension, the IRS is legally prohibited from paying the refund, no matter what Appeals concludes afterward.² There is no late-filed exception.

Penalties on Top of the Denial

A wrong claim can cost more than just the lost refund. If the IRS determines the claim included an “excessive amount” and you cannot show reasonable cause, the penalty is 20% of the excessive portion — the difference between what you claimed and what you were entitled to.¹⁴

Claims resting on frivolous legal positions carry a $5,000 penalty per submission.¹⁵ The IRS maintains a list of positions it treats as frivolous, and filing a claim based on any of them triggers the penalty unless you withdraw the submission within 30 days of being notified. These penalties stack on the disallowance itself.

Interest If You Win

When you ultimately prevail and the IRS issues the refund, the agency pays interest on the overpayment from the date the tax was paid. For individual taxpayers, the IRS overpayment rate is 7% per year, compounded daily, as of the first quarter of 2026.¹⁶ The rate resets quarterly, so a long-running case may cross several. Interest accrues automatically; you do not have to request it.¹⁷

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Taxpayer Advocate Service. Notice of Claim Disallowance
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Internal Revenue Service. Understanding Letter 105-C, Disallowance of the Employee Retention Credit
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Internal Revenue Service. If You Receive Letter 106-C About the Employee Retention Credit
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Office of the Law Revision Counsel. 26 USC 6511 – Limitations on Credit or Refund
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Internal Revenue Service. Frequently Asked Questions About the Employee Retention Credit
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Office of the Law Revision Counsel. 26 USC 6532 – Periods of Limitation on Suits
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Internal Revenue Service. IRS Document Upload Tool
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Internal Revenue Service. Appeals Process
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Internal Revenue Service. Preparing a Request for Appeals
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Internal Revenue Service. Instructions for Form 2848 Power of Attorney and Declaration of Representative
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Internal Revenue Service. Form 907, Agreement to Extend the Time to Bring Suit
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Internal Revenue Service. 4.10.11 Claims for Refund, Requests for Abatement, and Audit Reconsiderations
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Office of the Law Revision Counsel. 26 USC 7422 – Civil Actions for Refund
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Office of the Law Revision Counsel. 26 USC 6676 – Erroneous Claim for Refund or Credit
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Office of the Law Revision Counsel. 26 USC 6702 – Frivolous Tax Submissions
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Internal Revenue Service. Interest Rates Remain the Same for the First Quarter of 2026
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Office of the Law Revision Counsel. 26 USC 6611 – Interest on Overpayments