When the IRS disallows an ERC claim and simultaneously pursues repayment of credits already paid, you are facing two separate problems at once. The disallowance fight is one. The collection action running in parallel is another.
Filing an appeal into the IRS Independent Office of Appeals may help address both, but only if it is filed correctly and before the IRS levies your accounts.
If your business received an ERC disallowance letter, start with Cumberland Law Group’s ERC disallowance defense page to understand the larger legal strategy. This article focuses specifically on how collection protection works when the IRS is trying to collect money while the ERC dispute is still unresolved.
The tax attorneys at Cumberland Law Group, with offices in Atlanta, GA and across North Carolina in Raleigh, Charlotte, and Durham, represent business owners facing ERC disallowances, IRS collection notices, tax liens, levies, and refund litigation.
Two ERC Scenarios That Create Collection Exposure
Not every ERC disallowance creates immediate collection risk. The collection problem usually arises in two specific situations.
1. You received ERC credits and the IRS now wants them back
If your business received ERC refund payments and the IRS later concludes the credits were improper, it may issue a recapture demand. Letter 6577-C is the Employee Retention Credit recapture notice. It creates a tax liability, meaning money the IRS says you owe back, plus interest and potential penalties.
That liability can move into the standard IRS collection process: balance-due notices, a federal tax lien, and eventually a bank levy or seizure of receivables if the debt is not resolved.
2. You claimed ERC as a reduction in payroll tax liability
If your ERC claim was structured as a credit against Form 941 payroll taxes owed, a disallowance may reinstate the original payroll tax liability. The IRS may then pursue collection on unpaid payroll taxes, which carry their own penalty structure and escalation path.
In both situations, an active collection proceeding may be running alongside an unresolved substantive question about whether you actually owe what the IRS says you owe. That is where the collections stay matters.
Received a levy notice, lien notice, or ERC recapture letter? Call Cumberland Law Group at (800) 960-5359 before the collection deadline passes.
What the Collections Stay Is
When a taxpayer files a timely request for a Collection Due Process hearing after receiving a Notice of Intent to Levy, such as Letter CP90, or a Notice of Federal Tax Lien Filing, the IRS is generally required to stop collection action while the hearing is pending.
This is not just a courtesy pause. Under IRC Section 6330, the IRS is restricted from levying property after a timely CDP request is filed until the hearing process is completed and the taxpayer’s review rights have run their course.
The Collection Due Process hearing is handled by the IRS Independent Office of Appeals, independently of the collection function that issued the levy notice.
The Appeals Officer reviews whether collection action is appropriate given the taxpayer’s circumstances and whether alternatives to levy should be considered, including an installment agreement, an Offer in Compromise, or temporary delay based on financial hardship.
For ERC cases, the CDP hearing may also create an opportunity to raise the underlying disallowance dispute as a defense. If the liability itself is contested, and if the taxpayer has not had a prior opportunity to dispute it, the CDP hearing can become a critical venue for arguing that collection should not proceed because the ERC disallowance was improper.
The 30-Day Window to Preserve Collection Protection
The CDP request must generally be filed within 30 days of the date of the CP90 Notice of Intent to Levy or the Notice of Federal Tax Lien Filing.
Missing that 30-day window does not eliminate every option. A taxpayer may still request an equivalent hearing within one year. But an equivalent hearing does not carry the same automatic levy stay. Collection can continue while an equivalent hearing is pending.
The stay attaches only to a timely CDP request.
For business owners receiving collection notices while an ERC disallowance protest is simultaneously pending, the 30-day CDP window and the ERC protest timeline may be running at the same time. Letting one expire because you are focused on the other is a coordination failure that can leave the business exposed to levy.
If you are not sure whether your notice is a CDP notice, review our guide to IRS letters and notices and contact a tax attorney before the deadline passes.
What Happens During a CDP Hearing in an ERC Recapture Case
The CDP hearing in front of an IRS Appeals Officer usually covers two distinct areas.
1. Collection alternatives
Even if the underlying ERC liability is not disputed, the taxpayer can propose an installment agreement, an Offer in Compromise, or temporary delay based on hardship. The Appeals Officer evaluates whether the collection action balances the IRS’s interest in collecting the debt against the taxpayer’s rights and financial circumstances.
2. The validity of the underlying liability
If the taxpayer did not have a prior opportunity to dispute the ERC disallowance, which may be the case for algorithmic denials where no examination occurred before the denial, the CDP hearing may allow the taxpayer to raise the substantive eligibility argument.
This is where the ERC protest documentation becomes directly relevant to the collection proceeding.
A well-documented ERC protest that addresses the actual grounds for disallowance, including government orders, gross receipts, qualified wages, and payroll records, gives the CDP proceeding substantive material. An undocumented claim gives the Appeals Officer very little to work with, and collection action is more likely to proceed.
For a broader overview of the ERC denial process, review Cumberland Law Group’s ERC disallowance defense page.
The Collection Appeal Program: A Faster Track for Imminent Levy
If the IRS has already issued collection action and the 30-day CDP window has passed, the Collection Appeal Program, often called CAP, may provide a separate, faster track.
The Collection Appeal Program may be available for:
- Federal tax liens that have been filed or will be filed
- Levy or seizure actions that have been taken or will be taken
- Denial of requests for lien subordination, discharge, or withdrawal
CAP appeals are handled by IRS Appeals, and the process generally moves faster than a CDP hearing. The trade-off is significant: CAP decisions are final. There is no judicial review of a CAP determination, unlike CDP determinations, which may be reviewed by the Tax Court.
For an ERC recapture case where levy is imminent and the two-year refund deadline is also running, the choice between CDP and CAP affects which rights survive. That decision should be made with a tax attorney who can evaluate both timelines at the same time.
Businesses facing liens or levies may also want to review Cumberland Law Group’s resources on federal tax liens, bank levies, and wage garnishment.
The Coordination Problem: Two Clocks Running at Once
The central challenge in ERC recapture cases is managing two separate clocks.
| Clock | What It Controls | What Expires If You Miss It |
|---|---|---|
| 30 days from CP90 | CDP hearing request | Automatic levy stay and ability to raise liability dispute in CDP |
| 2 years from Letter 105-C or 106-C | Right to file refund suit | Potential permanent loss of right to ERC refund, even if IRS later agrees you were eligible |
| 30 days from Notice of Federal Tax Lien Filing | CDP hearing for lien | Lien challenge rights in collections and opportunity to request alternatives through Appeals |
These clocks are independent. Action on one does not automatically protect the other.
A business that files a strong ERC protest to the disallowance letter but ignores the CP90 levy notice may find itself facing collection action while the administrative ERC dispute is still pending.
Conversely, a business that files a timely CDP request but fails to monitor the two-year refund deadline may get collection action stopped while simultaneously losing the right to ever receive the ERC credit, even after winning the collection fight.
That is why ERC collection cases should not be handled as ordinary tax collection matters. The disallowance fight and the collection defense must be coordinated.
What Effective Representation Looks Like in This Scenario
Managing an ERC recapture case with active collection action requires simultaneous attention to the administrative protest, the CDP process, the collections stay, the two-year refund deadline, and the potential need for Form 907 extension agreements or federal court filings.
A CPA handling only the substantive ERC question may not be tracking collection deadlines. A collection specialist who is not familiar with ERC eligibility law may not be positioning the CDP hearing to address the underlying disallowance.
The two sides of the problem need to be managed together.
Cumberland Law Group handles both the substantive ERC disallowance fight and the collection defense for business owners in Georgia and North Carolina. We track the deadlines, coordinate the filings, and work to ensure that action on one front does not create inadvertent exposure on the other.
For business owners deciding who should handle the matter, read our guide on Tax Attorney vs. CPA.
A Practical Summary for Business Owners
If you received an ERC disallowance letter and are now also receiving collection notices, here is what to keep in mind:
- Do not ignore either the disallowance letter or the collection notices. They are governed by separate deadlines and separate processes.
- File a timely CDP request within 30 days of any CP90 Notice of Intent to Levy to preserve the automatic levy stay.
- Make sure your ERC protest documentation directly addresses the grounds stated in the disallowance letter.
- Monitor the two-year deadline on your disallowance letter separately from the CDP process. Appeals do not automatically extend it.
- If your two-year deadline has six months or less remaining and your protest is still unresolved, evaluate the IRS’s April 2026 streamlined Form 907 extension process.
The collections stay protection is real, and it can work. But it has to be triggered. A notice sitting on a desk while the 30-day window expires is not a stay. It is a waiver of important rights.
For more information on the underlying ERC dispute process, visit Cumberland Law Group’s ERC disallowance defense page.
Schedule a Free Consultation with Cumberland Law Group
Cumberland Law Group represents business owners facing ERC disallowances and related collection actions across Georgia and North Carolina.
Free consultations are available at our offices in:
If your ERC dispute has turned into a collection problem, do not wait for the IRS to levy your accounts before getting help.
Call Cumberland Law Group at (800) 960-5359 for a free consultation, or contact us online and we will call you back.
This post is for informational purposes only and does not constitute legal advice. Contact Cumberland Law Group directly for guidance specific to your situation.
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