Overview of the ERC Disallowance Challenge
The Employee Retention Credit (ERC) was widely used during the pandemic, but many claims have since been disallowed. When you receive a Letter 105-C or 106-C, the IRS disallows the credit or partially disallows it. A key complication is the two-year deadline to take action — either through administrative appeal or filing a lawsuit in federal court (irs.gov).
What’s New: Streamlined Extension via Form 907
As of April 27, 2026, the IRS published a new process (IR-2026-58) allowing eligible taxpayers to request more time using Form 907 when they're running out of time to resolve a claim (irs.gov). Key details:
- Only for ERC disallowance notices 105-C or 106-C.
- Taxpayers with six months or less remaining of the two-year statute of limitations may request an extension.
- Submit using the IRS Document Upload Tool (select notice CP320B) or through the usual process if CP320B not received.
- If agreed, the extension delays lawsuits and allows more administrative review time (irs.gov).
Real-World Example
ABC Café, LLC got Letter 105-C disallowing their ERC claim on May 5, 2024. That makes their two-year deadline May 5, 2026. By late November 2025, they had responded to the notice, but hadn't heard back.
Since six months or less remained (Nov-May), ABC Café:
- Received IRS Notice CP320B.
- Submitted Form 907 via the Document Upload Tool.
- IRS acknowledged and countersigned the form, extending their administrative deadline and preserving the option to file suit after administrative review if required.
Without this, ABC Café would have lost all rights under the two-year statute, even if the IRS later agreed they were entitled to part or all of the credit.
Actionable Insights for Other Taxpayers
- If you receive Letter 105-C or 106-C, note the date carefully — two years from that date is fixed.
- If you have six months or less to that deadline and you're waiting on IRS action, immediately see if you qualify for this extension.
- Use the IRS Document Upload Tool where possible — faster than paper.
- Keep all communications, notices, responses, and dates well-documented.
Benefits and Limitations
| Benefit | Limitation |
|---|---|
| Preserves rights if time is short | Only applies to ERC disallowances under 105-C/106-C notices |
| Avoids rush to litigation | Must meet eligibility (six-month window remaining) |
| Simplifies process via tool | No relief if notice not related to those letters |
Checklist for Businesses & Nonprofits
- Check if you've received Letter 105-C or 106-C.
- Count days to your two-year deadline.
- If ≤ 6 months remain and no IRS response yet, prepare Form 907.
- Upload via Document Upload Tool (select CP320B) or go through standard process.
- Consult tax counsel if unsure — avoid missing deadlines.
This process reflects the IRS’s attempts to reinforce taxpayer rights and reduce litigation pressure — especially for small entities balancing resources with complex tax compliance.