Did you receive an Employee Retention Credit (ERC) disallowance letter and you’re still waiting for the IRS to respond to your appeal?

If so, there’s an important new IRS process that could give you more time to protect your rights.

Many business owners don’t realize that simply appealing an ERC disallowance does not stop an important legal deadline from expiring. If you’re approaching that deadline, you could permanently lose the opportunity to receive your refund, even if the IRS later determines your claim was valid.

Here’s what you need to know.

Understanding the Two-Year Deadline

If the IRS disallowed your Employee Retention Credit claim, you likely received either:

• Letter 105-C, Disallowance of the Employee Retention Credit, or
• Letter 106-C, Claim Partially Disallowed.

From the date of that letter, you generally have two years to either:

• Resolve your claim through the IRS administrative process, or
• File a refund lawsuit in Federal court if you disagree with the IRS’s decision.

Here’s the part that surprises many taxpayers:

Even if you’ve already submitted an appeal to the IRS Independent Office of Appeals, that does not extend the two-year deadline.

Once that deadline passes, the IRS generally cannot issue your refund, even if it later agrees your claim should have been approved.

The IRS Has Created a New Streamlined Process

Recognizing that many taxpayers are approaching this deadline while still waiting for their appeals to be reviewed, the IRS has introduced a simplified process for requesting additional time.

If you qualify, you may be able to request an extension by submitting Form 907, Agreement to Extend the Time to Bring Suit.

If approved, this agreement gives:

• The IRS additional time to review your appeal.
• You additional time to file a refund lawsuit if necessary.

This can help prevent business owners from losing their rights simply because the IRS has not completed its review before the deadline expires.

Who Is Eligible?

You may qualify for this new process if both of the following apply:

• You are still waiting for the IRS to review your response to Letter 105-C or Letter 106-C.
• You have six months or less remaining before your two-year deadline expires.

If you meet both requirements, it’s worth reviewing your options as soon as possible.

How to Request an Extension

Eligible taxpayers can now submit Form 907 electronically using the IRS Document Upload Tool.

The IRS will review your request and notify you in writing whether it has agreed to extend your deadline. If approved, you’ll receive a countersigned copy of the agreement.

The IRS is also mailing Notice CP320B to many taxpayers who appear to qualify for this streamlined process. However, you may still be eligible even if you do not receive that notice.

Don’t Assume You Have Plenty of Time

One of the biggest challenges with ERC claims is that every taxpayer’s deadline is different because it is based on the date shown on the original disallowance letter.

If you received Letter 105-C or Letter 106-C, don’t assume you have months or years remaining. Take a few minutes to review your letter and determine exactly when your two-year deadline expires.

Waiting until the last minute could leave you with very limited options.

Final Thoughts

The Employee Retention Credit has been one of the most heavily scrutinized tax credits in recent years, and many legitimate business owners are still waiting for the IRS to complete its review of appealed claims.

This new streamlined process provides an opportunity for eligible taxpayers to preserve their rights while the IRS continues working through its backlog.

If you’ve received an ERC disallowance letter and are still waiting for a decision, now is a good time to review your timeline and determine whether requesting an extension makes sense before your deadline expires.

As always, if you’re unsure how this applies to your specific situation, work with your tax professional to ensure you don’t miss an important filing deadline.