What the IRS Actually Announced

The IRS rolled out a streamlined option for taxpayers whose Employee Retention Credit claims have been disallowed by Letters 105-C or 106-C. Instead of being locked into the two-year statute of limitations under Section 6532(a) for filing a refund suit, eligible taxpayers can now sign Form 907 (Agreement to Extend the Time to Bring Suit) and keep their case under administrative review.

The mechanics: roughly six months before your two-year clock runs out, the IRS will send Notice CP320B inviting you to either file suit in U.S. District Court or the Court of Federal Claims, or sign Form 907 to extend the suit deadline. The form itself goes back through the IRS Document Upload Tool, not certified mail.

Why This Matters for ERC Clients

Most NYC business owners we work with on ERC are in one of three situations. The first group filed during the 2021–2022 rush, got a disallowance letter in late 2024 or early 2025, and hasn’t done anything because their CPA was waiting for IRS guidance. The second group filed a protest with the IRS Independent Office of Appeals and is still waiting for a hearing. The third group already engaged tax counsel and is preparing a refund suit.

All three groups now have a real decision to make. Form 907 buys time, but it is not a free option — once you extend the statute, the IRS expects to keep working the case. You’re trading speed for cost certainty. For a $150K ERC claim, the math on whether to sue or extend looks very different than it does on a $1.2M claim where litigation costs are a smaller share of what’s at stake.

If You Already Got Letter 105-C or 106-C

Pull the date off the disallowance letter and add two years. That is your hard deadline to file a refund suit. If that date is fewer than 12 months away, expect a CP320B in the mail soon if it has not already arrived. Do not throw it out — the firm has seen disallowance correspondence end up in the wrong file at the client’s office because nobody recognized the notice number.

If You Are Still in Appeals

Form 907 makes more sense here than for taxpayers sitting on a fresh disallowance. The Office of Appeals does not move quickly, and forcing a lawsuit in the middle of administrative review usually means surrendering the negotiating posture you’ve spent months building. Extend, then keep working the appeal.

If You Already Hired Litigation Counsel

Talk to counsel before signing anything. Form 907 changes the litigation timeline and can affect filing strategy in either the Court of Federal Claims or U.S. District Court. The IRS is offering this as taxpayer-friendly relief, but signing it is a substantive act that affects your refund-suit deadline.

The Six-Month Window — What Actually Triggers It

The CP320B notice is the trigger. It arrives roughly six months before the two-year refund-suit statute expires under Section 6532(a), counted from the date of the original Letter 105-C or 106-C disallowance. From there, you have a narrow window to make one of three moves:

• Sign and submit Form 907 through the IRS Document Upload Tool. The IRS proposes the new deadline; both sides sign.
• File a refund suit in U.S. District Court (where you live or where the company has its principal place of business) or the Court of Federal Claims (Washington, D.C., docket).
• Do nothing and lose the right to sue when the two-year clock runs out. This happens more often than you’d expect, usually when the disallowance letter sits in a file folder while the business owner waits to hear from a CPA who has also been waiting.

National Taxpayer Advocate Erin Collins flagged the disallowance backlog as a top compliance concern in her annual report. The new procedure is partly a response to that — and partly an admission that the IRS cannot resolve the volume of pending ERC disputes before statutes start expiring on a meaningful scale.

How We Handle This for Reedcorp Clients

For ERC matters, the firm runs a short triage at intake: we pull the original Form 941-X amended payroll filings, the disallowance correspondence, the Appeals protest if one was filed, and any internal documentation supporting the original claim. If the substance of the claim is strong (genuine partial suspension under government order or a documented gross-receipts decline), we usually recommend extending under Form 907 to preserve the administrative path. If the claim was thin from day one — and many ERC mill claims were — the right answer might be to walk away rather than spend more on litigation.

For multistate businesses with state-level wage credit interactions, the analysis gets more involved because some state credits were tied to the federal ERC determination. New York employers in particular need to revisit whether any state credit claims are now exposed.

Our Business Tax Returns and Corporate Tax Returns teams coordinate on ERC defense alongside the firm’s Tax Strategy practice. For taxpayers with significant exposure, we work with outside counsel rather than represent in litigation directly.

Common Questions

Does signing Form 907 mean I’m waiving anything?

No. You are extending the deadline to bring a refund suit. The substantive merits of the claim are unaffected, and the original Letter 105-C or 106-C does not become final because the suit window stays open.

Can I sign Form 907 and then change my mind and sue?

Yes — within the new extended period. Form 907 buys time; it doesn’t cancel your right to bring suit during the new window.

What if I never got a CP320B?

You can still request the extension proactively. Reach out through the contact information on your original disallowance letter or through your representative’s POA on file. Don’t assume the IRS will mail the notice in time.

How long is the typical extension?

The IRS is generally proposing extensions in 12-month increments, though the exact length is negotiable on a case-by-case basis. Expect one extension to be straightforward; multiple extensions get harder.

Does this affect the refund-amount calculation?

The credit math itself is unchanged. What changes is the procedural posture of how and when you can fight for it.

What does this cost?

Form 907 itself has no filing fee. Professional fees for review, communication with Appeals, and continued administrative defense are billed at standard rates. A refund suit will typically run multiples higher because of court fees and attorney hours.

Source

Coverage of the IRS announcement and procedural details: Accounting Today — IRS lets taxpayers ask for more time after ERC is disallowed (April 27, 2026). Background on the underlying statute is at IRS Form 941-X and the appeals process at IRS Independent Office of Appeals.