The IRS recently announced a new process designed to help businesses dealing with denied Employee Retention Credit (ERC) claims. The update gives eligible taxpayers an easier way to request additional time for the IRS and the IRS Independent Office of Appeals to review their case before businesses are forced into refund litigation.
For companies that filed ERC claims during the pandemic, this change could provide valuable extra time to resolve disputes without immediately heading to Federal court.
What Happens When an ERC Claim Is Denied?
When the IRS disallows an ERC claim, businesses receive either Letter 105-C or Letter 106-C. These letters notify taxpayers that their claim has either been fully denied or partially disallowed.
After receiving one of these letters, businesses generally have two years to either:
- Resolve the matter administratively with the IRS
- File a refund lawsuit in Federal court if they disagree with the decision
Many businesses choose to appeal the IRS decision through the IRS Independent Office of Appeals. However, one major issue is that filing an appeal does not stop the two-year deadline clock.
Once that deadline expires, the IRS legally cannot issue a refund, even if the agency later determines the taxpayer should have received the credit.
IRS Introduces a Simpler Extension Option
To help businesses avoid losing their rights while waiting on ERC reviews, the IRS is now allowing certain taxpayers to request additional time by submitting Form 907, Agreement to Extend the Time to Bring Suit.
This new process is intended for taxpayers who meet both of the following conditions:
- The taxpayer is waiting for the IRS to review their response to Letter 105-C or 106-C
- The taxpayer has six months or less remaining before their two-year deadline expires
If approved, Form 907 extends the time available for both administrative review and potential litigation.
How Businesses Can Submit Form 907
Eligible taxpayers can now submit Form 907 through the IRS Document Upload Tool by visiting IRS.gov/DUTReply and selecting “CP320B” from the dropdown menu.
The IRS stated that properly completed forms will receive consideration, and taxpayers will receive written notice regarding whether the extension request was approved. If accepted, the IRS will send back a countersigned copy of Form 907.
The IRS also noted that this upload option only applies to ERC disallowance cases connected to Letters 105-C and 106-C. Other types of disallowance requests must still follow standard IRS procedures.
What Is Notice CP320B?
The IRS is mailing Notice CP320B to taxpayers it believes may qualify for this streamlined extension process. The notice includes instructions for submitting Form 907.
However, businesses may still qualify even if they did not receive the notice. The IRS has published additional guidance online for taxpayers who believe they meet the eligibility requirements.
Why This Matters for Businesses
The Employee Retention Credit program has created significant confusion for many employers. Between changing guidance, aggressive ERC promoters, audits, and claim denials, many businesses are still trying to determine where they stand.
This new IRS process provides businesses with more flexibility and helps prevent companies from losing their rights simply because the IRS review process is taking too long.
Still, the rules surrounding ERC claims remain highly technical. Missing deadlines or filing incomplete documentation can create major financial consequences.
Work Closely With Trusted Financial Professionals
If your business received Letter 105-C or Letter 106-C related to an ERC claim, it is important to review your timeline carefully and understand your available options.
Working with experienced payroll providers, accountants, and tax professionals can help ensure deadlines are met and documentation is handled correctly.
At ASAP Payroll, we help businesses stay informed about changing payroll tax regulations and compliance updates that impact employers nationwide.
Ready to simplify payroll and compliance management for your business? Request a quote today:
https://asappayroll.com/requestquote/
Frequently Asked Questions
What is IRS Letter 105-C?
Letter 105-C is an IRS notice informing a taxpayer that their Employee Retention Credit claim has been fully disallowed.
What is IRS Letter 106-C?
Letter 106-C notifies taxpayers that their ERC claim has been partially disallowed by the IRS.
What is Form 907?
Form 907 is an agreement between the taxpayer and the IRS that extends the time allowed to file a refund lawsuit related to an ERC claim disallowance.
Does appealing an ERC denial extend the deadline automatically?
No. Filing an appeal with the IRS Independent Office of Appeals does not automatically extend the two-year legal deadline to file suit.
Who qualifies for the new ERC extension process?
Businesses may qualify if they are waiting for the IRS to review their ERC disallowance response and have six months or less remaining before their filing deadline expires.