What This Letter Means

Letter 6577C is an Employee Retention Credit (ERC) recapture letter. It tells a business that the IRS is reversing, or recapturing, ERC it previously claimed on an employment tax return. The letter can arrive before the reversal shows up on your account or after it has already posted.

Why You Got It

The letter includes a paragraph that explains the specific problem. The reasons include:

  • The ERC claimed for 2021 exceeded the $7,000 per employee per quarter limit, based on the Forms W-2 you filed.
  • The ERC claimed was more than the maximum allowed for the number of employees reported on line 1 of the employment tax return.
  • No Forms W-2 were issued for the periods the ERC or qualified sick and family leave credit was claimed.
  • The credit was claimed for a period before the date your business was established, according to IRS records.
  • There was no payment activity on the account from 2019 to 2022.
  • A recovery startup business claimed more than the $50,000 limit for the fourth quarter of 2021.

If You Agree

Send a signed statement and pay what you can. If you don't pay, you'll get a balance due notice with penalties and interest.

If You Disagree

Send a statement explaining why, with the facts and records that support the credit you claimed. Use the fax number or address in the letter. The IRS will consider information that supports your claim even if it arrives late. Respond by the date on the letter. You can also pay the balance in full and file a claim for refund.

If You Don't Respond

The IRS adjusts your account for the amount in the letter, adds penalties and interest, and sends a balance due notice.

If It Turns Into a Balance Due

The IRS generally must send a Collection Due Process notice before it levies and after it files a federal tax lien. That notice gives your deadline, generally 30 days, to request a hearing with the Independent Office of Appeals on Form 12153. Payment plans, an offer in compromise, and currently not collectible status are all possible if you can't pay in full.

ERC recapture cases often turn on payroll records and eligibility facts. Get them organized before you respond.

If you received Letter 6577C and want help defending your ERC claim, call us at (813) 229-7100.