Businesses with pending Employee Retention Credit (ERC) disputes may have an opportunity to gain additional time to resolve their claims following the IRS’s new guidance.
According to a recent IRS announcement, the agency is offering a streamlined process for certain taxpayers to request additional time to pursue disallowed ERC claims.
Understanding the ERC deadline
The ERC was originally created during the COVID-19 pandemic to help eligible businesses continue paying employees during periods of shutdowns or significant revenue declines. While the program ended years ago, many claims remain under IRS review or in the appeals process.
When the IRS disallows an ERC claim, taxpayers typically receive Letter 105-C or Letter 106-C. From the date of that notice, taxpayers generally have two years to either resolve the matter administratively or file a refund lawsuit in federal court if they disagree with the IRS decision.
The IRS noted that this two-year statutory deadline continues to run even while the IRS Independent Office of Appeals or other IRS functions continue reviewing the case. Once the deadline has expired, the IRS generally cannot issue a refund, even if the agency later determines that the taxpayer qualified for the credit.
New extension process available
To help address the issue, the IRS announced a new process allowing certain taxpayers to request additional time by filing Form 907, Agreement to Extend the Time to Bring Suit.
According to the IRS, taxpayers may qualify for the extension if:
- The taxpayer is waiting for the IRS to consider a response to Letter 105-C or 106-C; and
- The taxpayer has six months or less remaining before the two-year period expires.
A properly executed Form 907 gives the IRS additional time to continue reviewing the claim administratively and provides the taxpayer with more time to file suit if necessary.
Notice CP320B and filing instructions
The IRS said it will send Notice CP320B to taxpayers identified as eligible for this new Form 907 submission method. Step-by-step instructions are available at IRS.gov/CP320B.
Taxpayers who believe they may qualify for the extension, even if they do not receive Notice CP320B, may still be eligible to request additional time. The IRS stated that eligible taxpayers can submit Form 907 through the IRS Document Upload Tool.
The IRS also said it continues processing ERC claims and appeals while working through existing cases and reviews.
Businesses that received an ERC disallowance notice should carefully review their deadlines and understand where their claims stand in the process.
The IRS emphasized that taxpayers should act before the statutory period expires, as Form 907 must be signed before the deadline passes to preserve additional time.
Businesses with pending ERC disputes should work closely with their tax advisors to evaluate deadlines, review IRS notices, and determine whether requesting an extension may be appropriate.
If your business received an ERC disallowance notice or you are unsure about your filing deadline, the tax professionals at Stephano Slack LLC can help review your situation and discuss available options. Contact Stephano Slack today at 610-687-1600 or taxinfo@StephanoSlack.com to better understand your ERC claim status and the steps available under the IRS’s new process.
Author Robert Radzinski, CPA, Manager, manages tax compliance for businesses and high-net-worth individuals. Rob can be contacted at 610-687-1600 or rradzinski@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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