IRS Offers Extension Option for Taxpayers Facing ERC Claim Deadlines

Why It Matters

Extending the deadline safeguards businesses from forfeiting ERC refunds due to IRS processing delays and curtails costly court battles, preserving taxpayer rights and easing the agency’s workload.

Key Takeaways

• IRS now permits Form 907 extensions for ERC disallowance appeals
• Extensions apply when less than six months remain on the two‑year deadline
• Taxpayers must be awaiting IRS response to Letter 105‑C or 106‑C
• Form 907 can be filed via IRS Document Upload Tool or DUTReply portal
• Extension helps avoid loss of refunds and costly litigation

Pulse Analysis

The Employee Retention Credit, enacted in March 2020, was a lifeline for firms struggling to keep payroll during pandemic shutdowns. Eligible employers could claim up to $7,000 per employee per quarter, generating an estimated $50 billion in tax credits nationwide. As the program wound down in late 2021, the IRS was inundated with more than 1.3 million ERC filings, many of which were later flagged as questionable. By summer 2024, the agency had issued roughly 28,000 disallowance notices, often based on automated risk filters rather than full examinations.

The statutory two‑year window to contest a disallowance—triggered by Letter 105‑C or 106‑C—has become a point of contention. Because the IRS’s compliance review can extend beyond the notice, some taxpayers face a deadline that expires before the agency reaches a decision, effectively stripping them of any refund or judicial review. To address this gap, the IRS now allows parties to sign Form 907, an agreement to extend the suit‑filing period, provided the request is made while six months or less remain on the original clock.

For businesses and tax practitioners, the new extension mechanism offers a practical safeguard against losing hard‑earned credits. By filing Form 907 through the IRS Document Upload Tool or the DUTReply portal, taxpayers gain additional time for the agency to complete its review, reducing the pressure to launch protective lawsuits. The policy also eases the Treasury’s litigation burden, potentially saving millions in legal costs. As the IRS continues processing outstanding ERC appeals, the extension could become a template for handling other pandemic‑era tax programs with similar deadline challenges.