What’s the Issue?
When your business files for Employee Retention Credit (ERC) and the IRS disallows it (via Letter 105-C or 106-C), a strict two-year deadline begins. You have those two years to either:
- Settle the matter administratively with the IRS or Appeals office, or
- File a refund lawsuit in federal court.
If that deadline expires without action, you lose the right to a refund—even if your claim is otherwise valid. (taxpayeradvocate.irs.gov)
New Breakthrough: Streamlined Extension Option
To help prevent losing your rights due to delays—either processing delay or extended IRS review—the IRS introduced a way for qualifying taxpayers to request extra time via Form 907, Agreement to Extend the Time to Bring Suit. Key details:
- You must have six months or less remaining under the two-year statute. (irs.gov)
- The extension request must be submitted using IRS’s Document Upload Tool (DUT). Select notice “CP320B” from the dropdown. (irs.gov)
- Properly executed Form 907 extends your time to either receive a refund or file a lawsuit. Without both signatures (yours and an IRS representative’s), extension does not apply. (irs.gov)
- The IRS will send Notice CP320B to taxpayers identified as eligible—but even if you haven’t received it, you may still be eligible if you meet the requirements. (irs.gov)
Who This Helps
This process is for taxpayers who:
- Filed an ERC claim and received a disallowance notice (Letter 105-C or 106-C),
- Responded to the disallowance and are waiting on a determination, and
- Have ≤ 6 months remaining before the two-year period expires.
For example: If your business got Letter 105-C on July 1, 2024, the deadline to file suit is July 1, 2026. If today you’re in February 2026, with less than six months remaining, you’d be eligible to submit Form 907 via DUT, even if you did not receive a CP320B.
Why It Matters
Delays in record reviews, administrative reviews, Appeals review, or even backlog can cause you to miss your window—even if ultimately your claim is valid. This extension process gives you a safety net to avoid losing rights due only to time.
Besides saving your refund rights, it reduces stress over litigation and keeps attorney or preparer costs manageable.
Actionable Steps You Can Take Now
- Review any Letters 105-C or 106-C you or your business received. Note the dates on them.
- Determine how many months are left before the two-year deadline.
- If six months or less remain AND you've responded to the disallowance, complete Form 907.
- Upload via IRS Document Upload Tool, selecting ‘CP320B’ notice.
- Keep copies of everything: forms, dates, acknowledgments.
- If working with representation, make sure powers of attorney are filed so your representative can sign where needed.
Example Scenario
Maria’s Bakery claimed ERC for 2021 but received Letter 106-C disallowing part of it on August 15, 2024. The two-year deadline to file suit would be August 15, 2026. On March 1, 2026, she still has less than 6 months remaining. Maria responded to the letter and is awaiting documentation. She completes Form 907, submits via Document Upload Tool under CP320B, and secures a countersigned extension—preserving her rights. If she missed this, after August 15, no court or refund option would remain.
Key Takeaways
- Don’t wait until it’s too late—this is a firm, legal deadline.
- The new extension process is limited to ERC disallowance cases. Disallowed claims for other credits or issues are not covered by this streamlined tool.
- Even without a CP320B notice, meeting the eligibility criteria may allow you to file in time.
- Document everything.
This change exemplifies how staying aware of policy updates can safeguard tax rights—and in ERC’s case, literally protect refunds or credits you’re owed.