IRS Letter 105-C: Claim Disallowance, Appeals, and Deadlines

IRS Letter 105-C is the formal notice that the IRS has denied your claim for a refund or credit, and the date printed at the top starts a two-year clock for taking the dispute to federal court. The letter is the agency’s final word at the administrative level on amended returns, overpayment claims, and credit requests such as the Employee Retention Credit. What you do in the weeks after it arrives — and whether you protect that two-year deadline — decides whether you can still recover the money.

What the Letter Tells You

The letter identifies the tax year or period, the dollar amount being denied, and the specific reasons the examiner rejected your claim. Read the reasons section closely. It will tell you whether the problem was a filing deadline, missing documentation, or a substantive disagreement about whether you qualify for a credit or deduction. That distinction shapes everything you do next.

The letter also spells out your appeal rights and the deadline for filing suit in federal court.¹ Note the mailing date on the first page and keep the original letter somewhere safe. That date is the anchor for every deadline that follows.

Why the IRS Denies Refund Claims

The most common reason for a full disallowance is timing. Federal law requires a refund claim to be filed within three years of when you filed the return or two years of when you paid the tax, whichever window closes later.² If your claim misses both, the IRS cannot legally issue the refund, no matter how strong the underlying case.

Claims also fail when supporting documents don’t line up with third-party records. The IRS cross-checks amended returns against W-2s, 1099s, and other data already on file. If a business expense looks personal, or the numbers don’t match, the examiner will reject it. Partial disallowances happen when part of the claim survives and part doesn’t, and you get a reduced refund instead of the full amount you asked for.

Your Two Paths: Appeals or Federal Court

After a 105-C, you can ask the IRS Independent Office of Appeals to review the decision, or you can sue for the refund in federal court. Most people try Appeals first because it’s cheaper and doesn’t require paying the disputed tax up front. But Appeals is not your only shot, and it does not stop the two-year court clock from running.

How to Request an Appeal

The IRS encourages you to respond within 30 days of the letter date, but that window is a recommendation, not a hard cutoff. You can request an appeal at any point within two years of the disallowance letter.¹ Responding early still helps: records stay fresh and the process gets moving.

Disputes of $25,000 or Less

If the total amount in dispute for each tax period is $25,000 or less, you can use Form 12203, Request for Appeals Review, instead of writing a full protest letter.³ The form asks you to list each item you disagree with and briefly explain why. Attach a copy of your Letter 105-C and mail everything to the IRS address printed on the letter, not directly to the Appeals office.⁴

Disputes Over $25,000

For larger amounts, the IRS requires a formal written protest.⁴ You draft the letter yourself, and it needs to include:

Your name, address, and daytime phone number.
An explicit statement that you want to appeal the IRS’s proposed changes.
Each disputed issue, the tax periods involved, the proposed changes, and why you disagree.
A clear account of the facts and transactions supporting your position.
References to the Internal Revenue Code sections, revenue rulings, or other authority you rely on.
A signed declaration, under penalties of perjury, that the information is true, correct, and complete.

If the denial was based on missing documentation, the protest is your chance to submit receipts, bank statements, or contracts. Organize evidence chronologically and tie each document to the specific issue the examiner flagged.

The Two-Year Deadline Is the One That Matters

The date to circle is two years from the mailing date of your Letter 105-C. After that, you lose the right to file a refund lawsuit, and any refund issued past that point is treated as erroneous.⁵ This is the biggest trap in the process. An active appeal does not pause the clock. If Appeals is still working your case at the twenty-third month, your court option is about to vanish anyway.

You and the IRS can agree to extend the deadline by signing Form 907, Agreement to Extend the Time to Bring Suit. The extension is not effective until an IRS official countersigns it.⁶ Until that signature is on the page, treat the original deadline as live and be prepared to file suit. If your Appeals conference is dragging past the year-and-a-half mark, ask about Form 907 in writing.

Filing a Refund Suit in Federal Court

If Appeals doesn’t resolve the dispute, or you want to skip it entirely, you can sue for a refund in U.S. District Court or the U.S. Court of Federal Claims. Before filing, you must have already submitted a formal refund claim to the IRS.⁷ Letter 105-C itself is proof that the IRS considered and denied your claim, so that prerequisite is already satisfied.

There is a second requirement that trips people up. Under Flora v. United States, you generally must pay the full amount of tax the IRS says you owe before you can file a refund suit.⁸ You are suing to get that payment back. Without full payment, the court has no jurisdiction to hear the case.

District Court offers a jury trial; the Court of Federal Claims does not, but its judges see tax cases regularly and can hold sessions around the country. Filing fees in the Court of Federal Claims are $405, and District Court fees are comparable.⁹ The real cost is legal representation, which is why most smaller disputes end at Appeals.

If You Were Asked to Sign Form 2297

Sometimes during examination the IRS asks you to sign Form 2297, Waiver of Statutory Notification of Claim Disallowance. Signing it means you agree to skip the formal Letter 105-C, and the IRS sends a closing letter instead.¹⁰ The consequence: your two-year window to file suit starts on the date you sign the waiver, because no formal notice is coming to start it later. Without your signature, the IRS has to issue Letter 105-C to begin that clock.

Penalties If the IRS Was Right

If the IRS decides your claim included an “excessive amount” — more than you were legally entitled to — you face a penalty of 20 percent of that excess.¹¹ The penalty doesn’t apply if you can show the excessive claim was due to reasonable cause, meaning you had a legitimate basis for the amount you requested even though it turned out to be wrong. Interest also runs on any tax you still owe, and it compounds daily, so a slow response makes the exposure grow if the disallowance stands.

What Happens If You Do Nothing

Let the two-year deadline pass without filing an appeal or a lawsuit, and the disallowance becomes permanent. Federal law treats any refund the IRS might issue afterward as erroneous, which means the agency cannot legally pay you even if the denial was wrong. There is no late-filing exception. The refund is gone.

The most dangerous version of this outcome involves people who assume Appeals will keep their options open. Appeals can keep working the case past the two-year mark, but a favorable result there becomes unenforceable if you didn’t preserve your right to sue by filing suit or getting Form 907 countersigned in time. Treat the two-year date on Letter 105-C the way you would any statute of limitations, because that is exactly what it is.⁵

1
Internal Revenue Service. Understanding Letter 105-C, Disallowance of the Employee Retention Credit
2
Office of the Law Revision Counsel. 26 USC 6511 – Limitations on Credit or Refund
3
Internal Revenue Service. Form 12203 – Request for Appeals Review
4
Internal Revenue Service. Preparing a Request for Appeals
5
Office of the Law Revision Counsel. 26 USC 6532 – Periods of Limitation on Suits
6
Internal Revenue Service. Agreement to Extend the Time to Bring Suit (Form 907)
7
Office of the Law Revision Counsel. 26 USC 7422 – Civil Actions for Refund
8
Justia Supreme Court. Flora v. United States, 357 US 63 (1958)
9
U.S. Court of Federal Claims. U.S. Court of Federal Claims Schedule of Fees
10
Internal Revenue Service. Claim and Overassessment Cases
11
Office of the Law Revision Counsel. 26 USC 6676 – Erroneous Claim for Refund or Credit