Compliance
Compliance Alert: Disallowed ERC Claims & New Deadline Extension Process
ERC claim disallowance comes with a ticking two-year deadline. Learn the new streamlined process to preserve your rights and avoid losing refund opportunities forever.
By NomadicTax Research Team • 5-8 min read • May 28, 2026
## What’s the Issue with Disallowed ERC Claims?
When the IRS disallows your Employee Retention Credit (ERC) claim, you’ll receive **Letter 105-C** (fully disallowed) or **Letter 106-C** (partially disallowed). From that date, the **two-year statute** under IRC § 6532(a) starts ticking. After two years, you lose the right to seek a refund—even if your case is meritorious. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-new-option-for-certain-taxpayers-to-request-more-time-after-erc-claim-disallowance?utm_source=openai))
## New Streamlined Process to Extend the Deadline
If you're within six months of the end of that two-year window and are awaiting an IRS or Appeals response, you now have a formalized path:
- Submit **Form 907** (Agreement to Extend the Time to Bring Suit) *before* the two-year deadline expires. This must be **mutually signed** by you and the IRS. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-new-option-for-certain-taxpayers-to-request-more-time-after-erc-claim-disallowance?utm_source=openai))
- IRS has launched **Notice CP320B**, which is sent to taxpayers in this situation, alerting them of the deadline and giving clear instructions. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-new-option-for-certain-taxpayers-to-request-more-time-after-erc-claim-disallowance?utm_source=openai))
- The Document Upload Tool (IRS Document Upload Tool) makes this process easier—selected notices can request an extension directly online. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-new-option-for-certain-taxpayers-to-request-more-time-after-erc-claim-disallowance?utm_source=openai))
## What You Must Do Immediately
- Check if you’ve received a **disallowance notice**. Note its date – that is your start for the two-year clock.
- If less than six months remain before the deadline and you haven’t yet filed suit, monitor for **Notice CP320B**. If you didn’t get it, you can still use Form 907 via instructions on IRS’s webpages (CP320B, ERC105C, ERC106C) to request an extension. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-new-option-for-certain-taxpayers-to-request-more-time-after-erc-claim-disallowance?utm_source=openai))
- Keep records of your submission and confirmation of Form 907.
- Consult a tax professional if the case is complex—especially if multiple letters or appeals are involved.
## Example Scenario
> A small business received Letter 105-C disallowing its ERC claim on **May 1, 2024**. Two years from that date is **May 1, 2026**. As of **late November 2025**, the business receives no response from the IRS on its protest. With six months remaining (after November 1, 2025), the business can and should submit Form 907 (signed by both parties), or act upon CP320B if issued, to preserve its right to file suit beyond May 1.
## Consequences of Missing the Deadline
- No refund or credit, even if taxpayer proves eligibility later.
- Loss of ability to litigate in federal court on the matter.
- Missed opportunity to assert rights furnished by law.
## Tips for Staying Compliant
- Always note dates on letters and notices from IRS.
- When responding to disallowance, simultaneously assess whether you will need more time.
- Don’t assume appeals or protests stop the statute. Only a signed extension (Form 907) will.
- If eligible, use IRS’s tools to file extensions electronically—avoid delays.
- Seek professional review to ensure timely filings.
## Bottom Line
Disallowed ERC claims can lead to permanent loss of refunds if deadlines lapse. With new streamlined options – especially CP320B and Form 907 via the upload tool – taxpayers now have clearer paths to preserve their rights. Act fast; these timelines are unforgiving.