The Internal Revenue Service is offering taxpayers a new option to request more time for the IRS and its Independent Office of Appeals to review a taxpayer's response to a disallowance of an Employee Retention Credit claim and avoid protracted litigation.
When an ERC claim is disallowed, the IRS typically sends taxpayers a Letter 105-C or 106-C. Taxpayers then usually have two years from the date of that letter to resolve their claim administratively or to file a refund suit in Federal court if they disagree with the IRS's decision. Taxpayers may protest the IRS's disallowance with the IRS Independent Office of Appeals, but that does not extend this statutory two-year deadline.
After the two-year period ends, the IRS isn't supposed to issue a refund, even if it later decides in the taxpayer's favor after reviewing the disallowance. The deadline varies depending on the date of the original 105-C or 106-C letter.
The IRS said Monday it's aware that some taxpayers are approaching the end of this two-year period, so it's providing a new way for taxpayers to request more time to resolve their claims administratively or to file suit through the filing of
- The taxpayer is waiting for the IRS to consider their response to the notice of disallowance on Letter 105-C or 106-C, and
- The taxpayer has six months or less remaining before their two-year period expires.
Under current law, the IRS and a taxpayer can agree in writing to extend the time to file suit, if both parties sign Form 907 before the two-year period expires. A fully executed Form 907 gives the IRS extra time to consider the disallowance administratively and gives the taxpayer more time to file suit, if needed.
Starting today, taxpayers with six months or less remaining in their time to file a lawsuit, and who are waiting for the IRS to consider their disallowance response to Letter 105-C or 106-C, can now submit Form 907 requesting an extension via the
The IRS said it will give properly executed Forms 907 due consideration, and taxpayers will be told in writing whether the IRS has agreed to the extension. Countersigned Forms 907 will be sent to taxpayers or their authorized representative. The IRS will not consider, however, Forms 907 submitted for disallowances unrelated to Letters 105-C or 106-C. It said taxpayers should submit these requests through the IRS's normal processes.
The IRS is sending Notice CP320B to taxpayers identified as eligible for this new Form 907 submission method. Step-by-step instructions can be found at
The IRS noted that taxpayers may be eligible to extend the time even if they don't receive Notice CP320B. Step-by-step instructions are available at
Taxpayers who received an ERC claim disallowance notice and are unsure of their deadline should review the information provided on the following pages on IRS.gov:
The IRS said it will continue processing ERC claims and appeals in accordance with its established procedures. This new streamlined process is intended to provide taxpayers with clear, timely information about their rights and available options, and thereby observing taxpayers' rights.
National Taxpayer Advocate Erin Collins, who leads the IRS Taxpayer Advocate Service, has made a similar proposal to help taxpayers caught in this ERC timing bind. In her annual report to Congress, she
Collins
A tax attorney hailed the decision. "This is an important win for taxpayers and a smart move by the IRS," said Glen Frost, managing partner and founder of Frost Law, in a statement. "Agreeing to these time extensions will protect hard-working individuals and businesses from losing potential refunds. Not only does this protect taxpayer rights, it avoids a litigation nightmare for the government by avoiding time-consuming lawsuits. This is also a wise decision that can help take some pressure off the overloaded the IRS Independent Office of Appeals, a situation that is affecting a wide range of taxpayer cases in addition to the Employee Retention Credit. We thank IRS CEO Frank Bisignano and National Taxpayer Advocate Erin Collins for their efforts to make this happen."
Collins noted that in the summer of 2024, the IRS issued approximately 28,000 disallowance notices, many of which were based on the results of risk filter analyses as opposed to a prior examination. "Taxpayers responded to these disallowances by filing protests and expecting prompt review by Appeals," she added. "Instead, many of these cases were routed to IRS Compliance for initial review because no examination had previously occurred. Although this Compliance review allowed the IRS to consider taxpayer-submitted documentation, it took place while the two-year period continued to run. Ordinarily, this type of review would occur during an examination prior to the notice of disallowance and before the two-year clock begins running. As a result, some taxpayers may reach the end of the two-year period before the IRS completes its review, losing their right to both a refund and judicial review. This creates a fundamentally unfair situation where administrative delay alone can determine the outcome."
