IRS Provides Way to Extend ERC Disallowance Deadline

The IRS released a new option for certain taxpayers whose Employee Retention Credit (ERC) refund claims were disallowed to request more time before the two-year deadline and file a refund lawsuit. This matters because the deadline can keep running even while a taxpayer waits on IRS review or IRS Independent Office of Appeals, and once the two-year window closes, the refund may be lost even if the IRS later agrees with the taxpayer’s position. 

KBKG Insight 

This announcement is a helpful relief for taxpayers caught in limbo after a Letter 105-C or 106-C, especially where Appeals consideration is taking longer and the two-year clock is nearing expiration. In many cases, options were limited to either filing a refund suit to protect the two-year deadline or simply hoping the IRS would respond within the window.  This new pathway gives taxpayers a more practical way to preserve their rights while the IRS and IRS Appeals continue to get through their backlog.   

The biggest risk we see is that taxpayers assume a protest or an Appeals request pauses the deadline. It does not. CPAs should treat this as deadline triage and immediately confirm the disallowance letter date and how much time remains. 

The IRS says eligible taxpayers can submit Form 907 through the IRS Document Upload Tool by selecting notice “CP320B,” which should reduce submission friction and create a clearer audit trail if the taxpayer retains the upload confirmation. CPAs should still monitor for written IRS acceptance because the extension is not effective unless the IRS signs and returns the agreement. 

Key Takeaways 

• The IRS has a new option to extend the ERC refund lawsuit deadline for some taxpayers after a Letter 105-C/106-C, using Form 907.  
• The two-year clock usually keeps running even during IRS review or Appeals, so CPAs should confirm the letter date and remaining time immediately.  
• File Form 907 through the IRS Document Upload Tool (select “CP320B”) and watch for IRS approval, because the extension only counts if the IRS signs and returns it. 

Background 

When the IRS disallows an ERC claim, it may issue Letter 105-C (full disallowance) or Letter 106-C (partial disallowance). Taxpayers generally have two years from the date of that letter to resolve the claim administratively or file a refund suit in federal court. Importantly, submitting a protest or waiting for IRS Appeals does not automatically extend that two-year deadline. 

The IRS announcement describes a process for taxpayers to request additional time through Form 907, Agreement to Extend the Time to Bring Suit, in limited situations. The IRS indicates this option is available where: 

1. The taxpayer is still waiting for the IRS to consider its response to a Letter 105-C or 106-C disallowance; and  
2. The taxpayer has six months or less remaining before the two-year deadline expires.  

The IRS instructs taxpayers to submit Form 907 through the IRS Document Upload Tool (IRS.gov/DUTReply) and select notice “CP320B” from the drop-down menu. The IRS also states taxpayers may still be eligible even if they did not receive Notice CP320B. The IRS will review properly executed Forms 907 and notify taxpayers in writing whether the extension has been accepted. If approved, a countersigned Form 907 should be sent to the taxpayer or authorized representative. 

Conclusion 

KBKG recommends CPAs and taxpayers with ERC claims previously disallowed by Letter 105-C or 106-C confirm the exact letter date and calculate the remaining time in the two-year period immediately. If six months or less remain and the taxpayer is still awaiting IRS consideration of their disallowance response, determine whether submitting Form 907 through the IRS Document Upload Tool is appropriate. Retain proof of submission and monitor for a countersigned agreement or written IRS response because the extension is only effective if accepted. 

Action Steps 

• CPAs and taxpayers with ERC claims previously disallowed by Letter 105-C or 106C should immediately calculate the remaining time in the two-year period and decide if filing an extension is appropriate. 
• For years, KBKG has been at the forefront of specialized tax programs like ERC and has built deep expertise across value-added incentives. Reach out to KBKG to discuss how we can support your clients: https://www.kbkg.com/contact-us 
• If your clients are looking for support in other high-impact areas, explore KBKG services including the research tax credit (R&D credit study), 179D (Energy Tax Incentives), and cost segregation (cost segregation study).  
• You can also view additional KBKG insights here: https://www.kbkg.com/tax-insights.  

Source document link (IRS) 

IRS News Release: “IRS announces new option for certain taxpayers to request more time after ERC claim disallowance”