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On April 27, the IRS announced a streamlined administrative procedure that enables eligible taxpayers with disallowed employee retention credit (ERC) claims to request an extension of the refund suit deadline. The process applies to taxpayers who received a Letter 105-C or Letter 106-C disallowing an ERC claim and now have six months or less remaining before the two-year refund suit period expires.
Grant Thornton insight:
This is an important procedural development because many ERC disallowance responses remain under IRS or Appeals review while the statutory clock continues to run. A taxpayer may be actively pursuing administrative relief, but that does not stop the two-year period for filing a refund suit to challenge the disallowance. If the period expires, the IRS generally cannot issue the refund, even if the IRS or Appeals later agrees that the taxpayer’s claim was valid. (See Section 6514(a)(2) and Section 6532).
When the IRS disallows an ERC claim, it generally issues Letter 105-C for a full disallowance or Letter 106-C for a partial disallowance. Those letters start the two-year period for the taxpayer to file a refund suit in federal court. Filing a protest or pursuing review with the IRS Independent Office of Appeals does not extend or suspend that deadline.
That creates a significant statute protection issue. A taxpayer may be waiting for the IRS to consider its response but may be forced to file a refund suit in federal court to preserve the claim. Without an extension, the taxpayer risks permanently losing the right to recover the refund.
The streamlined procedure allows qualifying taxpayers to extend the statute using a Form 907, Agreement to Extend the Time to Bring Suit. Form 907 is the written agreement used by the IRS and the taxpayer to extend the two-year refund-suit period under Section 6532(a)(2).
If fully executed before the original deadline expires, Form 907 gives the IRS more time to complete its administrative review and gives the taxpayer additional time to file suit if the claim is not resolved favorably. Form 907 does not extend the deadline unless it is signed by both the taxpayer and the IRS before the two-year period expires.
Grant Thornton insight:
This appears to be a practical effort by the IRS to avoid forcing a large number of ERC disputes into court solely to preserve taxpayers’ rights. The IRS has acknowledged that some taxpayers are approaching the end of the two-year period while their disallowance responses remain under review. By creating a streamlined Form 907 process, the IRS is effectively encouraging eligible taxpayers to seek extensions so that claims can continue through the administrative process rather than being pushed into refund litigation.
Form 907 should be treated as a statute protection tool. It does not concede the merits of the ERC claim, and it does not guarantee a refund. It simply preserves the taxpayer’s ability to continue working with the IRS administratively while maintaining the right to file suit if litigation becomes necessary. Taxpayers should continue tracking the original two-year deadline and should not assume the period has been extended unless they receive a validly executed, countersigned Form 907 from the IRS.
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