IRS Provides Way to Extend ERC Disallowance Deadline

Why It Matters

Without the extension, taxpayers risk losing ERC refunds even if the IRS later agrees with their claim, creating significant financial exposure for businesses. The new option gives advisors a practical tool to protect client assets while navigating IRS backlogs.

Key Takeaways

• IRS allows Form 907 to extend ERC suit deadline
• Extension applies with six months or less left on clock
• Deadline continues running during IRS review or Appeals
• CPAs must verify letter date and obtain IRS countersignature
• Use IRS Document Upload Tool, select CP320B, retain proof

Pulse Analysis

The Employee Retention Credit, introduced under the CARES Act, became a lifeline for millions of employers during the pandemic, offering refundable tax credits for wages paid to retained staff. As the program wound down, the IRS has disallowed a sizable share of claims, issuing Letter 105‑C for full disallowances and Letter 106‑C for partial ones. Taxpayers have two years from the date of those letters to either resolve the issue administratively or file a refund suit in federal court. Historically, that two‑year window kept ticking even while the IRS reviewed the case, putting firms at risk of forfeiting sizable refunds.

The latest IRS notice creates a narrow but valuable carve‑out: taxpayers with six months or less remaining can file Form 907, Agreement to Extend the Time to Bring Suit, through the IRS Document Upload Tool, selecting notice CP320B. The form must be properly executed and signed by the IRS before the extension becomes effective, making the countersignature the critical checkpoint. By using the electronic upload, taxpayers generate a clear audit trail and reduce paperwork friction. However, the option is limited to cases still awaiting IRS consideration of the original disallowance, so timing and eligibility verification are essential.

For CPAs and tax advisors, the new pathway shifts deadline management from a gamble to a controllable process. Immediate confirmation of the disallowance letter date, calculation of the remaining period, and prompt filing of Form 907 can safeguard multi‑million‑dollar refunds that would otherwise evaporate. The rule also underscores a broader lesson: procedural milestones, such as protests or appeals, do not pause statutory deadlines. Firms that embed this extension into their ERC compliance checklist will not only protect client cash flow but also demonstrate proactive risk mitigation—a competitive advantage in the crowded tax advisory market.