You filed an amended return or a formal claim asking the IRS for money back — an overpayment, a credit you missed, a loss carryback — and instead of a refund check, you got a letter saying no. If that letter is IRS Letter 105-C, formally titled a Notice of Claim Disallowance, it is not the end of the road. But it does start two clocks at once, and the louder of the two is not the one that can permanently end your claim.
This guide explains what Letter 105-C actually is, why claims get disallowed, the three ways you can fight back, and the single deadline mistake that costs taxpayers their refunds even when they are right on the merits.
What Letter 105-C Actually Is
Letter 105-C is the IRS's formal legal notice that it is disallowing your claim for credit or refund — in whole. If only part of your claim was denied, you will receive its sibling, Letter 106-C, a partial disallowance. Either way, the letter should state the specific reason the IRS denied the claim, adjust your account accordingly, and explain your options for disagreeing.
What makes this letter different from an ordinary IRS notice is its legal weight. Letter 105-C is the statutory notice of claim disallowance described in Internal Revenue Code section 6532. The date printed on it starts the two-year period you have to file a refund suit in federal court. No other IRS letter carries quite that consequence, which is why tax professionals treat a 105-C as a "calendar it today" event, not a "get to it eventually" letter.
Expect one of three account outcomes after the adjustment: a smaller refund than you claimed, no refund at all, or — if the disallowance flips your account from an overpayment to an underpayment — a balance due notice arriving separately. If you owe, pay what you can by the date on that notice and explore payment options; interest and penalties keep running while you dispute the underlying decision.
Why Refund Claims Get Disallowed
The letter should spell out the reason in your case, but most disallowances fall into a few recurring buckets.
The claim was filed too late
The single most common reason is timeliness. Under section 6511, a claim for credit or refund must generally be filed by the later of two dates: three years from the date you filed the return, or two years from the date you paid the tax. Miss both, and the IRS must deny the claim no matter how valid the underlying overpayment is.
Two subtleties trip people up here. First, withholding and estimated payments are generally treated as paid on the return's original due date, not when they were withheld from your paycheck — so "but I paid throughout the year" does not extend the window the way many filers assume. Second, there is a separate limit on how much you can recover even with a timely claim: roughly, only tax paid within the lookback window counts. File within the three-year window and you can generally recover payments from the three years (plus any extension period) before the claim; file only within the two-year-from-payment window and recovery is capped at what you paid in the two years before the claim.
The credit or deduction does not hold up
The IRS may agree your claim was timely but reject the substance: the credit you claimed does not apply to your situation, the deduction lacks substantiation, or the math on the amended return is wrong. Recent years saw a wave of these involving pandemic-era employer credits, where claims were disallowed because the business did not meet the eligibility tests, the wages did not qualify, or the claim duplicated wages already used for another credit.
The paperwork does not prove the position
Sometimes the underlying position is fine but the claim package was thin — no receipts, no corrected forms, no explanation tying the numbers to the law. A disallowance on these grounds is often the most fixable kind: the same claim with proper documentation can succeed on reconsideration.
The Two Clocks: 30 Days and Two Years
Letter 105-C creates two very different deadlines, and confusing them is the costliest mistake in this entire process.
Clock one: the 30-day response ask
The IRS generally asks you to dispute the disallowance within 30 days of the letter's date. This is not a hard statutory deadline in the way the second clock is — it is the agency's requested turnaround so your case can move quickly to reconsideration or to the Independent Office of Appeals while the record is fresh. Treat it as urgent anyway. Responding promptly protects your options, keeps your case with the office that knows it, and builds the paper trail you will need if the dispute goes further.
Clock two: the two-year suit deadline
Under section 6532, you have two years from the date the IRS mails the notice of claim disallowance to file a refund suit in federal court. Here is the part that destroys otherwise winnable claims: asking Appeals to review your case, or asking the IRS to reconsider, does not pause or extend this two-year period. The clock keeps running while you negotiate.
The Taxpayer Advocate Service puts the warning bluntly: even if Appeals ultimately decides your claim was correct, you may receive no refund or credit if the suit-filing period has already expired. If the two-year mark is approaching and your case is still sitting with Appeals or under reconsideration, you generally must file a protective suit to preserve your rights — you can continue negotiating while the suit is pending.
There is one legitimate way to buy time: a written agreement with the IRS to extend the suit period, executed on Form 907, Agreement to Extend the Time to Bring Suit. Both sides must sign before the two years expire. Do not assume an extension exists because someone at the IRS said your case was "still open" — if it is not on Form 907, the clock is still running.
Your Three Options After a Disallowance
You can pursue these in sequence — most taxpayers start with the first and escalate only as needed.
Option 1: Ask the IRS to reconsider
Send a written explanation of why you believe you are entitled to the credit or refund, with documentation proving your position, to the address shown on the letter (or the IRS office where you filed the original return). Good reconsideration packages include:
- A clear statement of the tax year, the amount claimed, and the legal basis (the code section, regulation, or IRS guidance supporting you)
- Proof of timeliness if that was the stated reason — for example, a certified mail receipt or proof you had a valid extension for the original return
- Corrected forms, payment records, receipts, bank statements, or payroll records substantiating the numbers
- A point-by-point response to each reason the letter gave for the denial
If the IRS agrees, it adjusts your account and generally sends the refund about six to eight weeks after receiving your response. If it does not agree, you still have Appeals and the courts — but remember, the two-year clock never stopped.
Option 2: Take your case to the Independent Office of Appeals
You can request that your case be sent to Appeals, the IRS's independent settlement arm, which decides cases based on the hazards of litigation — essentially, how a court would likely rule. Appeals officers can settle cases the examination side would not, which makes this the most productive forum for most disputes.
How you get there depends on the dollars at stake:
- Amount of 25,000 dollars or less per tax period: you can make a Small Case Request using Form 12203, Request for Appeals Review, or a brief written statement identifying what you disagree with and why. This is the simpler path, designed for exactly this kind of dispute.
- More than 25,000 dollars for any period: you must file a formal written protest following the instructions in IRS Publication 5, including a detailed statement of facts, the law supporting your position, and a penalties-of-perjury declaration.
Mail your appeal to the office that sent the disallowance letter, and keep proof of mailing. And one more time, because it matters most here: filing an appeal does not extend the two-year suit deadline. Calendar that date separately and protect it with a Form 907 extension or a timely suit if Appeals is still working your case as it approaches.
Option 3: File a refund suit in federal court
If you cannot resolve the claim administratively, you can sue for a refund in either the U.S. District Court with jurisdiction over you or the U.S. Court of Federal Claims. Note what is missing from that list: the Tax Court. Tax Court hears deficiency cases before you pay; refund suits after a disallowance go to the district court or the Court of Federal Claims, which are part of the judicial branch and have no connection with the IRS.
Two prerequisites catch first-time litigants off guard. First, you must have filed a timely administrative claim and waited at least six months after filing it before suing (the disallowance letter itself satisfies the substance of this requirement in most cases, but the timing rules still apply). Second, the Flora full-payment rule generally requires you to have fully paid the tax for the period before you can sue for a refund of it — you cannot litigate a balance you still owe, with a limited exception for so-called divisible taxes such as employment taxes, where paying one employee's share can open the courthouse door.
Refund litigation is genuinely federal-court litigation, with filing fees, discovery, and procedure to match. Most small businesses should get a tax controversy professional involved before filing — but the decision to file must still be made before the two-year deadline, so line up counsel early rather than in month twenty-three.
Common Mistakes That Lose Winnable Claims
- Treating the 30-day ask as the only deadline. Responding within 30 days is good practice, but it is the two-year suit deadline that is fatal if missed. Calendar both on the day the letter arrives.
- Assuming Appeals stops the clock. It does not. Neither does reconsideration, a phone call with an agent, or a case "still under review." Only a filed suit or a signed Form 907 protects you.
- Suing in the wrong court. A refund suit filed in Tax Court after a disallowance goes nowhere. District Court or Court of Federal Claims are the proper forums.
- Suing before fully paying. Under the full-payment rule, an unpaid balance generally means no refund jurisdiction. Verify payment status before filing.
- Accepting a timeliness denial without checking the math. The three-year/two-year computation, extension periods, and deemed-payment dates create genuine edge cases. Pull your account transcript, verify filing and payment dates, and confirm the IRS ran the calculation correctly before conceding.
- Ignoring a resulting balance due. Disputing the disallowance does not suspend collection on any balance it created. Pay what you can and set up a payment arrangement to stop penalties and interest from compounding the damage.
Keep a Dispute-Ready Paper Trail
Every option above gets easier — and some become possible at all — if your records are organized before the letter arrives. The taxpayers who fix a disallowance fastest are the ones who can put their hands on the right documents immediately.
Build a simple claim file for every refund claim you file and keep it until the two-year suit period has fully run:
- A copy of the claim itself (amended return or claim form) with proof of when and how you filed it — certified mail receipts or electronic filing confirmations
- The return for the year in question, plus records of every payment for that year with dates and amounts, so you can reconstruct the section 6511 timeliness calculation
- Every IRS letter about the claim in chronological order, with the Letter 105-C date highlighted and both the 30-day response target and the two-year suit deadline calendared
- Workpapers tying the claimed amount to source documents — receipts, payroll records, bank statements — so a reconsideration package or Appeals submission can be assembled in days, not months
Tracking payment dates separately from filing dates is the habit that pays for itself here. Timeliness disputes turn entirely on those two timelines, and reconstructing payment history from bank statements two years later is exactly the scramble that produces missed deadlines.
Simplify Your Financial Management
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