The IRS just reset the ERC clock: Six months or file suit

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The IRS announced a streamlined process for Employee Retention Credit claimants to extend the two-year deadline to file a refund suit after a claim disallowance. The mechanism is Form 907, Agreement to Extend the Time to Bring Suit. The instructions are set out in the IRS's CP320B guidance. The submission route is the IRS Document Upload Tool. The eligibility window is six months or less remaining on the two-year clock.

The April 27 announcement is short. The implications for practitioners are not.

For tax professionals with ERC clients sitting on Letter 105-C or Letter 106-C, this is the most consequential deadline-management development since the IRS resumed processing claims. It is a statute of limitations problem with a procedural fix. Read it that way and act quickly.

The scale of the problem

The ERC inventory has shrunk dramatically, but the cases that remain are the hard ones.

According to the Government Accountability Office's February 2026 report, the IRS had processed nearly 5 million ERC claims as of June 2025, resulting in approximately $283 billion in reduced tax liabilities and refunds. The IRS told the GAO that, as of June 2025, it had closed all ERC claims other than approximately 41,000 still in inventory under examination or appeal. That is the most recent authoritative public count. The Taxpayer Advocate Service Objective 6 page for FY 2026 notes that its first-quarter update was deferred due to the appropriations lapse, so a more current TAS figure is not yet available. The window for filing original ERC claims closed on April 15, 2025.

That is the population this announcement addresses. Roughly 41,000 unresolved cases as of mid-2025. Tens of thousands of disallowance notices already issued through 2024 and 2025. More disallowances coming as the IRS works through what remains. Many of those cases are now inside or approaching the six-month window.

The two-year trap

When the IRS disallows an ERC claim, it issues Letter 105-C for a full disallowance or Letter 106-C for a partial disallowance. Under IRC Section 6532(a), the taxpayer has two years from the date of that letter to file a refund suit in U.S. District Court or the U.S. Court of Federal Claims.

Filing a protest with the IRS Independent Office of Appeals does not extend that two-year period. The IRS says so directly in its CP320B guidance and on its 105-C and 106-C explainer pages. The clock runs whether or not Appeals has scheduled a conference. It runs whether or not the IRS is still considering the taxpayer's response. When it expires, the IRS cannot issue a refund or credit. The right is gone.

Most practitioners underestimate that last point. A protest filed with Appeals does not stop the clock. An open Appeals docket does not stop the clock. A pending response to the disallowance does not stop the clock. Only a signed Form 907 or a filed refund suit stops it.

The IRS knows this. The new pathway is a direct acknowledgment that a meaningful number of ERC claimants are about to lose refund rights because Appeals cannot work the inventory fast enough.

What the announcement actually does

Form 907 has always been available. Under existing 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 countersigned Form 907 gives the IRS more time to consider the disallowance and gives the taxpayer more time to file suit if the case does not resolve.

What changed on April 27 is access. The IRS created an ERC-specific channel with defined eligibility, structured submission and a commitment to process the requests.

Eligibility requires two conditions. First, the taxpayer is waiting for the IRS to consider their response to a Letter 105-C or 106-C disallowance. Second, the taxpayer has six months or less remaining on the two-year period.

Eligible taxpayers submit Form 907 through the IRS Document Upload Tool, following the CP320B instructions. The IRS will review the request and respond in writing. A valid extension exists only when the IRS countersigns the agreement before the two-year date. Submission alone does not protect the client.

The channel is limited to ERC disallowances under Letter 105-C and Letter 106-C. Form 907 requests for other disallowances go through normal IRS channels.

The practitioner view

The announcement is welcome, but practitioners who have been handling ERC disallowances since the first tranche of 105-C letters went out in July 2024 may see it differently.

"Practitioners have been sounding the alarm over this issue since the first disallowance letters were sent, yet the IRS remained largely silent until now, aside from the occasional outright refusal to execute a 907," said Ashlee Hall, founding partner of Hall Lundstedt LLC, a firm that has handled several hundred ERC cases. "The silence has been compounded by significant delays and errors on the part of the IRS throughout the exam and appeals process, leaving taxpayers with little stamina to navigate yet another new process and meet impending deadlines. ERC fatigue is real, and practitioners should act quickly to ensure their clients' rights are protected before it's too late."

Hall's point underscores the operational reality. The pathway exists. Whether the IRS can execute it at scale and on time is the open question.

Why this matters for your practice

Three points deserve attention.

First, Form 907 is a bilateral agreement. The IRS can refuse. The IRS has said properly executed forms will be given due consideration, which is not a guarantee. If the IRS does not countersign before the two-year date, the deadline is not extended.

Second, the six-month eligibility window is a hard gate. Clients with seven or eight months remaining are not yet eligible to use this channel. Calendar those files now and submit when the window opens. Clients with less than 30 days remaining are in a different posture and should be evaluated for immediate suit filing in parallel with the Form 907 submission.

Third, the announcement does not change the merits. A Form 907 buys time. It does not improve a weak ERC eligibility position. The extension period should be used to strengthen the administrative record on governmental order analysis, gross receipts decline documentation, aggregation and supply chain disruption substantiation.

What practitioners should do now

Run a 105-C and 106-C report across every ERC client. Sort by letter date. Identify every file where the two-year date falls on or before Oct. 27, 2026. Those are the files inside the six-month window today.

For each flagged file, confirm the current status. If a response to the disallowance is pending IRS consideration, the client meets the eligibility criteria. If no response was filed, the analysis is different and the Form 907 channel may not apply.

Verify Form 2848 authority for each affected client. Countersigned Forms 907 are routed to the authorized representative on file. A stale Power of Attorney sends the document to the wrong address and burns time.

Prepare and submit Form 907 through the IRS Document Upload Tool, following the CP320B instructions. Document the submission date, the confirmation number and the contents of the upload. Calendar a 60-day follow-up to confirm countersignature.

For any file where the two-year date falls inside 90 days, draft the contingency complaint now. If the IRS does not countersign in time, the client needs the option to file suit on short notice. Do not rely on the extension as the sole protective measure.

Coordinate with Appeals. If an Appeals conference is scheduled, raise the Form 907 submission with the Appeals officer. The extension benefits the IRS as well, and Appeals officers are generally cooperative when the alternative is a refund suit on their docket.

Document the file. Note when the deadline was identified, when Form 907 was submitted, and when the IRS responded. That record protects the practitioner if the client later questions the handling of the matter.

Common errors that forfeit protection

The most common errors are a name or Employer Identification Number mismatch with the disallowance letter; the wrong tax type or tax period on Form 907; a missing taxpayer signature where required; a representative not covered by a valid Form 2848; and assuming submission equals protection without an IRS countersignature before the two-year date.

The forum question

If the Form 907 fails or the case is not resolved, the client must choose a forum. The two options for an ERC refund suit are the U.S. District Court and the U.S. Court of Federal Claims.

The District Court offers a jury trial. The Court of Federal Claims does not. The District Court applies regional circuit precedent. The Court of Federal Claims applies Federal Circuit precedent. Refund suits generally require payment of the disputed tax under the Flora rule. Employment taxes are divisible. In most ERC matters, the underlying employment tax was paid with the original Forms 941, so payment is not the blocker. Verify offsets, penalties or related liabilities before choosing a forum. Make the forum decision before the deadline, not at it.

What clients need to hear

The clock is real. An Appeals protest does not stop it. A pending IRS response does not stop it. Only a countersigned Form 907 or a filed refund suit stops it.

The IRS has made the extension easier to request. That is the good news. The IRS still has to agree, and the IRS can decline. That is the planning constraint.

The decision tree has three branches: Resolve at Appeals. Sign a Form 907 and continue working the file. File suit. The new pathway makes the second branch more accessible. It does not eliminate the first or third.

For clients with strong eligibility positions and meaningful refund amounts, the extension is a clear benefit. It avoids the cost of litigation while preserving the right to litigate. For clients with weaker positions, the extension creates time to evaluate whether the lawsuit is worth the cost. For clients with marginal positions, the extension may simply delay the inevitable.

A look forward

The announcement is a procedural fix, not a policy shift. The IRS is not adopting a softer posture on ERC claims. It's acknowledging that its own inventory is unworkable within the statutory deadline structure. Form 907 lets the IRS keep working the file without forcing the taxpayer to sue.

Expect the remaining cases reported by the IRS to drive disallowance and litigation activity through 2026 and 2027. Expect the Appeals inventory to remain backed up. Expect litigation volume to rise as cases that cannot resolve administratively reach the courts.

For practitioners, the immediate task is operational. Pull the files. Calendar the dates. Verify the authorizations. Submit the forms. Draft the contingency complaints. The IRS handed practitioners a tool. It works only if it is used before the window closes.