Case Studies
Strategic Use of Employee Retention Credit Disallowance Relief
Many businesses face disallowed Employee Retention Credit (ERC) claims—but new IRS policies now give eligible taxpayers a **streamlined pathway** to extend deadlines and preserve refund rights.
By NomadicTax Research Team • 5-8 min read • May 9, 2026
## Understanding ERC Disallowance and Your Rights
When the IRS disallows your ERC claim, you receive a **Letter 105-C** (full disallowance) or **Letter 106-C** (partial disallowance). That triggers a strict **two-year deadline** under IRC § 6532(a) to either:
- resolve the case administratively (e.g., in Appeals), or
- file suit in federal court, or receive a refund via agreement.
Once that deadline passes, even if your claim is found valid later, the IRS can’t issue a refund—and you can’t sue. ([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 Extension Process (Form 907)
To help taxpayers with ERC claims at risk of losing their refund rights due to looming deadlines, the IRS has introduced a new process:
- Starting April 27, 2026, eligible taxpayers can use **Form 907, Agreement to Extend the Time to Bring Suit**, to extend the deadline. ([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))
- If you’ve responded to an ERC disallowance notice and have **six months or less** remaining before the two-year deadline, you may submit Form 907 via the **IRS Document Upload Tool**. Eligible letter types include Letter 105-C or 106-C. ([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 IRS will then confirm whether it agrees to the extension—if agreed, the time to file suit or get a refund is formally extended. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/protect-your-employee-retention-credit-claim/2026/04/?utm_source=openai))
## Who Qualifies for the Extended Deadline
| Requirement | Description |
|------------|-------------|
| Disallowance Type | Must have received Letter 105-C or 106-C (full or partial disallowance) |
| Pending Response | You must have submitted a response to that disallowance |
| Deadline Remaining | Six months or less remain in the two-year period |
If you meet all criteria, you can use this streamlined process. If not, you may still be able to file Form 907—but through traditional channels, and earlier. ([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))
## Actionable Steps for Businesses & Practitioners
1. **Immediately determine** the date on your 105-C/106-C notice & calculate the two-year deadline. Waiting too long = risk of permanent loss.
2. If **six months or less** are left, prepare and submit Form 907 via the IRS Document Upload Tool using notice code **CP320B** or via the IRS guidance on ERC letters. ([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))
3. Retain copies of all submissions, including the fully signed Form 907. Administrative delays can eat into the deadline.
4. Monitor whether you receive Notice **CP320B**, which informs you about your eligibility and links to a fillable Form 907. If not received, you may nonetheless be eligible; the guidance pages at IRS.gov for 105-C and 106-C provide instructions. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/protect-your-employee-retention-credit-claim/2026/04/?utm_source=openai))
## Why This Matters
- The ERC was a powerful tax shield during COVID-19 and many businesses claimed it. Disallowed claims can run up against this two-year statute without much warning.
- IRS administrative delays often consume a large portion of the two-year clock. Without this extension process, even valid claims may be permanently lost due to timing alone. ([taxpayeradvocate.irs.gov](https://www.taxpayeradvocate.irs.gov/news/nta-blog/protect-your-employee-retention-credit-claim/2026/04/?utm_source=openai))
This policy does **not** apply to disallowed claims unrelated to the ERC; those still follow the traditional timeline.
## Summary
**Bottom line**: If you’ve had an ERC claim disallowed, act quickly to preserve your rights. Use the newly introduced streamlined Form 907 process if you’re approaching the deadline. Failing to extend in time could result in permanent loss of claim—even if it’s valid. Stay diligent and document everything.
*NomadicTax Research Team*