“IRS announces new option for certain taxpayers to request more time after ERC claim disallowance,” IR-2026-58, April 27, 2026

As tax professionals are well aware, when the Internal Revenue Service disallows an Employee Retention Credit (ERC) claim, the taxpayer receives either a Letter 105-C for a full disallowance or a Letter 106-C for a partial disallowance. Upon receipt of these legal notices, affected taxpayers "generally have two years from the date of that letter to resolve their claim administratively or to file a refund suit in Federal court if they disagree with the IRS's decision". However, practitioners must caution their clients that electing to protest the disallowance with the IRS Independent Office of Appeals "does not extend this statutory two-year deadline". By statute, the Service notes that it "can't issue a refund or allow a credit after the two-year period unless you file suit during that period". Consequently, the IRS emphasizes that "If you do not file suit within the 2-year period, or do not enter into a written extension agreement before it expires the IRS cannot issue a refund or credit, even if Appeals later issues a favorable decision". Without a formal extension, the taxpayer's only recourse to preserve their claim is to "File suit with the U.S. District Court that has jurisdiction or with the U.S. Court of Federal Claims".

Why the IRS Released This Streamlined Process Now

The IRS has recently announced a "new, streamlined way for taxpayers to extend the period of time for the IRS and the IRS Independent Office of Appeals to review a taxpayer's response to a disallowance of an Employee Retention Credit (ERC) claim to avoid refund litigation". The timing of this release is largely due to the ticking statutory clock on early disallowances, with the IRS noting, "The IRS is aware that some taxpayers are approaching the end of this two-year period and is providing a new way for taxpayers to request more time to resolve their claims administratively or to file suit". Ultimately, the Service maintains that "This new streamlined process is intended to provide taxpayers with clear, timely information about their rights and available options, and thereby observing taxpayers' rights".

Eligibility Criteria for the Form 907 Extension

To qualify for this new streamlined submission method, taxpayers must meet two strict criteria. First, "The taxpayer is waiting for the IRS to consider their response to the notice of disallowance on Letter 105-C or 106-C". Second, "The taxpayer has six months or less remaining before their two-year period expires". The IRS is actively identifying eligible taxpayers and "sending Notice CP320B to taxpayers identified as eligible for this new Form 907 submission method". However, tax practitioners can act proactively, as "Taxpayers may be eligible to extend the time even if they don't receive Notice CP320B".

Mechanics of the Streamlined Procedure

The procedural vehicle to request this extension is Form 907, Agreement to Extend the Time to Bring Suit. Under the new process, practitioners "may submit Form 907 requesting an extension via the IRS Document Upload Tool by going to IRS.gov/DUTReply and selecting notice 'CP320B' from the drop-down menu". It is absolutely critical for CPAs and EAs to inform their clients that "The extension is not valid until the IRS signs it". Once submitted, "Properly executed Forms 907 will be given due consideration by the IRS, and taxpayers will be informed in writing whether the IRS has agreed to the extension". The IRS will then return "Countersigned Forms 907" to the taxpayer or their authorized representative.

Practitioners must be aware of an important procedural carve-out for cases already in the administrative pipeline. The IRS instructs that if a taxpayer has "requested an appeal with the Independent Office of Appeals and know your assigned Appeals Officer, please contact them directly to request an extension of your time to file suit". Practitioners who do not know the assigned Appeals Officer should utilize the Document Upload Tool. Additionally, the IRS warns that it "will not consider, as part of this tool, Forms 907 submitted for disallowances unrelated to Letters 105-C or 106-C, and taxpayers should submit these requests through the IRS's normal processes".

Technical Requirements for Form 907 Preparation

When executing Form 907, precision is mandatory. The IRS explicitly states that "Failing to complete all required fields on Form 907 can result in a delay in processing or denial of extension agreement". Representatives must accurately input the Taxpayer ID, Name, Address, and an Expiration Date that "May be up to 2 years from date of earliest expiration". Furthermore, the refund credit information section requires the exact Period Ended, Employment as the Kind of Tax, the Amount of Tax claimed, and the Date Notice of Disallowance Mailed.

The form also contains strict substantiation and signature requirements. Crucially, the instructions dictate: "IMPORTANT: You must submit with this agreement a statement of the issues involved in the claims for refund or credit of the taxes listed above". Regarding signatures, if a tax professional is signing on behalf of the taxpayer, "You must include a copy of your Form 2848, Power of Attorney and Declaration of Representative with Line 5a completed to authorize signing of Form 907". For joint returns, "both husband and wife must sign the original and copy of this form unless one, acting under a power of attorney, signs as agent for the other". For corporate taxpayers, the representative must "sign this agreement with the corporate name followed by the signature and title of the officer(s) authorized to sign". Fiduciaries acting on behalf of a taxpayer must "attach a completed Form 56, Notice Concerning Fiduciary Relationship, if you haven't already filed one".

Statutory Limitations and Statements of Issue

As practitioners draft the required statement of issues to accompany Form 907, they must be intimately familiar with the statutory grounds the IRS uses for ERC disallowances. Beyond issues of suspension of operations or gross receipts declines, practitioners must monitor strict statutory filing deadlines. For instance, a Letter 105-C may disallow a claim on the grounds of untimeliness by invoking statutory mandates; the IRS gives the specific example that "Pursuant to section 70605(d) of Public Law 119-21, commonly known as the One, Big, Beautiful Bill Act, no credit or refund with respect to such credit will be allowed after July 4, 2025, for the last two quarters of 2021 unless the claim was filed on or before Jan. 31, 2024". In such cases, the CPA or EA needs to "provide documentation to support that your claim was filed on or before January 31, 2024, such as proof of mailing, certified mail receipt, etc".

By successfully executing Form 907 prior to the expiration of the two-year deadline, tax practitioners can secure the necessary administrative time for the IRS to review these complex statutory and factual arguments, thereby effectively preserving their client's right to a potential refund or credit.

Prepared with assistance from NotebookLM.