Please reach us at (714) 330-8557 if you cannot find an answer to your question.
All information below is directly from the Internal Revenue Service.
IRS Disallowing Q3 2021 ERTC Claims
The IRS has implemented several measures that specifically target Q3 2021 ERTC claims, making them subject to heightened scrutiny and disallowance:
Current Disallowance Patterns
The IRS has been sending out Letter 105-C disallowance notices to businesses, with many targeting Q3 2021 claims specifically. According to recent analysis, the IRS has identified taxpayers with "open claims related to the third quarter of 2021" as being particularly at risk for receiving these disallowance letters.
New Legislative Restrictions
Recent federal legislation ("One Big Beautiful Bill") has created significant new restrictions for Q3 2021 claims:
Claims Filed After January 31, 2024: All ERTC claims for Q3 and Q4 2021 that were filed after January 31, 2024, are now retroactively disallowed, regardless of whether they would have been valid under previous law. This means these claims will not be processed or paid, even if they were filed before the original April 15, 2025 deadline.
Extended Audit Period
The IRS now has six years (instead of the typical three years) to audit and potentially recapture ERC claims specifically for Q3 and Q4 2021. This extended statute of limitations gives the IRS significantly more time to review and potentially disallow these claims.
High Disallowance Rates
Current IRS processing shows that 80-90% of pending pre-moratorium ERC claims have been identified as "high risk," with many being subject to either outright denial or examination. The agency has stated it will deny 10-20% of high-risk claims outright and examine another 60-70%.
Specific IRS Reasoning for Q3 2021 Disallowances
The IRS has been disallowing Q3 2021 claims based on several common reasons found in Letter 105-C notices:
Lack of government orders: "Our records indicate there were no government orders related to COVID-19 in effect during the quarter(s) you claimed ERC which could have fully or partially suspended your trade or business"
Insufficient gross receipts decline: Claims where businesses show overall revenue increases from 2019 to 2021, even if specific quarters met the decline requirements
Documentation issues: Missing or inadequate supporting documentation for eligibility requirements
Where to Find This Information
This information can be found on the official IRS Employee Retention Credit page and in the IRS's Letter 105-C guidance, which specifically states that businesses receiving disallowance letters should check their eligibility and provides detailed requirements for responding to denials.
The heightened scrutiny of Q3 2021 claims reflects the IRS's broader effort to combat what it considers widespread fraud and abuse in the ERC program, particularly for later quarters when the credit values were highest.