IRS ERC Review Delays: New Extension Process for Disallowed Claims

Over the past year, many taxpayers with disallowed Employee Retention Credit (ERC) claims have found themselves waiting, often longer than expected, for the IRS to review their responses. Meanwhile, statutory deadlines continue to run while these claims sit under review. In late April, the IRS introduced a new, limited procedure that allows certain taxpayers to request additional time to resolve their ERC claims administratively or preserve their ability to pursue a refund in court. While the change does not address the underlying backlog, it does provide a potential safeguard for taxpayers who meet specific criteria and are approaching critical deadlines.

What the New IRS ERC Extension Process Means for Taxpayers

When the IRS disallows an ERC claim, it issues either Letter 105‑C or Letter 106‑C. From the date of that notice, taxpayers generally have two years to resolve the matter administratively or file a refund suit in federal court. Importantly, filing a protest with the IRS Independent Office of Appeals does not pause that two‑year clock. If the deadline expires, the IRS is legally barred from issuing a refund, even if a later review concludes the taxpayer was entitled to the credit.

The IRS’ new procedure centers on Form 907, an agreement that allows the IRS and a taxpayer to mutually extend the time to file a refund suit. While Form 907 has long existed, the IRS has now introduced a streamlined submission option for a specific group of ERC claimants.

This option is available only to taxpayers who meet two conditions: they must be waiting for the IRS to consider their response to a disallowance issued under Letter 105‑C or 106‑C, and they must have six months or less remaining before the two‑year deadline expires. For those who qualify, the IRS will consider requests submitted through a designated online process and notify taxpayers in writing whether the extension has been accepted.

It is worth noting what this change does—and does not—do. It does not reopen disallowed claims, alter eligibility standards, or guarantee a favorable outcome. It also does not apply to disallowances unrelated to ERC letters 105‑C or 106‑C. What it does offer is additional time for the IRS to complete its review and time for taxpayers to preserve their ability to pursue a refund if administrative resolution is not reached.

Next Steps for Taxpayers With Disallowed ERC Claims

For taxpayers with ERC disallowance notices already in hand, the most important step is understanding where they are on the two‑year timeline and whether their claim is still under active review. In some cases, taxpayers may receive a specific IRS notice identifying them as eligible for this new process. In others, eligibility may still exist even if no such notice has been received.

Given the technical nature of ERC claims and the consequences of missed deadlines, this is an area where careful review matters. The new procedure provides a measured form of relief for a narrow group of taxpayers, but only if it is identified and acted on before the statutory window closes.

Clients with questions about the status of a disallowed ERC claim or how this new IRS procedure may apply to their situation may contact their AAFCPAs advisor to discuss timing, options, and next steps based on their specific circumstance.

How We Help

For more than 50 years, AAFCPAs has helped businesses and nonprofit organizations navigate complex financial and regulatory matters. As scrutiny around Employee Retention Tax Credit (ERTC) claims continues to evolve, our team supports clients in understanding their position and responding appropriately to IRS notices. If you receive a Notice of Claim Disallowance, we can assist with evaluating your claim, preparing a response, and advising on next steps, including the appeal process when warranted. Our approach is grounded in technical knowledge, clear documentation, and practical guidance tailored to your situation.

These insights were contributed by Courtney McFarland, CPA, MSA, 340B Apexus Certified Expert™, Partner.

Questions? Reach out to our author directly or your AAFCPAs partner.

AAFCPAs offers a wealth of resources on ERC compliance. Subscribe to get alerts and insights in your inbox.