What's Happening?
The IRS has announced a new streamlined process for Employee Retention Credit (ERC) claimants to extend the two-year deadline to file a refund suit after a claim disallowance. This process involves the use of Form 907, Agreement to Extend the Time to Bring
Suit, as outlined in the IRS's CP320B guidance. Eligible taxpayers, who are waiting for the IRS to consider their response to a Letter 105-C or 106-C disallowance and have six months or less remaining on the two-year period, can submit Form 907 through the IRS Document Upload Tool. The IRS will review the request and respond in writing, but a valid extension only exists when the IRS countersigns the agreement before the two-year date.
Why It's Important?
This development is significant for tax professionals and their clients dealing with ERC disallowances, as it provides a procedural fix to a statute of limitations issue. The IRS's new pathway acknowledges the backlog in processing ERC claims and offers a way to prevent taxpayers from losing refund rights due to delays. This move could impact approximately 41,000 unresolved cases as of mid-2025, potentially affecting billions in tax liabilities and refunds. The announcement highlights the importance of timely action by practitioners to protect their clients' rights.
What's Next?
Practitioners are advised to run reports on their ERC clients to identify those within the six-month eligibility window and prepare to submit Form 907. They should also draft contingency complaints for cases nearing the two-year deadline to ensure the option to file suit remains available. Coordination with the IRS Appeals Office is recommended to leverage the extension for ongoing cases. The IRS's ability to process these requests efficiently will be crucial in determining the success of this new pathway.
