Taxpayers May Have More Time to Respond to Disallowed Employee Retention Tax Credit Claims By Joseph Leocata, JD, CPA, MBA
The IRS introduced a new process for taxpayers to request more time to review, respond to and resolve disallowed Employee Retention Credit (ERC) claims beyond the existing two-year window, including the option to file a refund suit.
Background
Congress introduced the ERC as a payroll tax credit for businesses that continued to pay workers during the COVID pandemic despite government-mandated closures and significant declines in gross revenue. While the credit provided a lifeline for many struggling businesses, it also spurred a deluge of false claims among bad actors and ineligible businesses, ultimately inundating the IRS and slowing down the processing of legitimate claims.
If the IRS disallows a claim, it notifies taxpayers via Letters 105C or 106C and gives them two years from the date of the letter to resolve the claim administratively or file a refund lawsuit if they disagree with the decision. Moreover, once the two-year period ends, the IRS cannot issue a refund even if it later rules in the taxpayer’s favor. For many taxpayers, that statutory deadline is around the corner.
How to Request More Time To Resolve ERC Claims
Effective April 27, 2026, taxpayers who already submitted responses to IRS Letters 105C and 106C and who have six months or less remaining of the two-year statutory deadline may request that their cases remain open and receive an extension of time to file a refund suit or receive payment by filing IRS Form 907 on the IRS’s website.
To initiate this streamlined process, the IRS is mailing Notice CP320B, Important Reminder Regarding Your Disallowed Employee Retention Credit (ERC) Claim, to eligible taxpayers, alerting them of the approaching deadline and directing them to take action. Once the IRS receives a completed Form 907, it will confirm that the taxpayer’s case meets the specified criteria and sign its agreement, granting the taxpayer additional time to receive payments or file a refund suit. If the taxpayer does not qualify for relief or if the form requires corrections, the IRS will notify the taxpayer via Letter 3064C.
Taxpayers who do not receive Notice CP320B from the IRS but believe they meet the requirements for relief may still qualify for an extension, provided they submit extensive supporting documentation to the IRS. If the IRS agrees with a taxpayer, it may process the claim without sending the case to Appeals. However, if a taxpayer’s response to a disallowance does support an ERC claim, the IRS will forward the case to Appeals to make a final decision.
Taxpayers whose ERC claims were disallowed should take the time to look at the date on their initial IRS notices to determine their eligibility to file Form 907, Agreement to Extend the Time to Bring Suit. Once the statute of limitations passes, taxpayers permanently lose any rights to future ERC claims. Working with experienced tax professionals can go a long way toward protecting taxpayers’ rights and ensuring that tax credit claims are substantiated with proper documentation.
About the Author: Joseph Leocata, JD, CPA, MBA, is a director of Tax Services with Baker Tilly x Berkowitz Pollack Brant, where he works with individuals and businesses on a broad range of federal, state and local tax issues, including representation before the IRS on tax controversy matters. He can be reached at the CPA firm’s New York City office at (646) 213-7600 or info@bpbcpa.com.
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