Key Takeaways
- The Internal Revenue Service (IRS) launched a portal for Form 907 requests tied to denied Employee Retention Credit (ERC) claims on Letters 105-C and 106-C.
- Taxpayers awaiting ERC appeal decisions can seek more time to file refund suits if six months or less remain before the two-year deadline expires.
- Form 907 extensions require an existing ERC appeal and IRS approval, highlighting ongoing refund processing delays and litigation risks for employers.
The IRS recently provided a direct method for taxpayers who have had Employee Retention Credit (ERC) claims fully or partially denied to request an extension of the deadline to sue for a refund. This is a key opportunity for taxpayers still awaiting an IRS response to appeals of denied claims that are approaching the two-year deadline for refund suits. Read on for more details about the IRS announcement.
What Issue Did the IRS Address?
The ERC is a COVID-era payroll credit by which certain eligible taxpayers were able to claim for wages paid in 2020 and 2021. Many taxpayers claimed these credits on amended payroll tax returns and the IRS has been slow to process those returns. In mid-to-late 2024, the IRS issued a spate of letters denying ERC claims, either fully (Letter 105-C) or partially (Letter 106-C). Taxpayers had the right to administratively appeal and many did; however, the IRS has not substantively responded to many of the filed appeals.
Importantly, a taxpayer has two years from the date of denial of a tax refund to sue the IRS in federal court regarding that refund claim. Filing an administrative appeal with the IRS does not toll the statute of limitations for filing in court. As a result, denial letters issued in 2024 are coming up on the two-year deadline for suit, potentially requiring taxpayers to pursue costly litigation before receiving a response to their appeal.
IRS Provides Potential Solution
The IRS announcement is that they have released a direct portal for taxpayers to submit Form 907 (Agreement for Extension of Time to Bring Suit) that is available for taxpayers that:
- Are waiting for the IRS to consider their appeal to the notice of disallowance on Letter 105-C or 106-C, and
- Have six months or less remaining before their two-year period to sue for refund expires.
PKFOD Observation: Applying for the extension does not guarantee it — the IRS must accept the request. However, the opening of the online portal and the specific ERC-related guidance suggests the IRS understands the issue that has been created by delays in responding to ERC appeals.
Note that this process only applies if an appeal was submitted — so those who did not appeal are not eligible. Further, there must be six months or fewer remaining in the two-year period; so for those who may have received their letters late in 2024 or in 2025, they may need to circle that six-month date on their calendars if the IRS hasn’t responded to their appeal by that date.
You can read the full IRS announcement here.
Contact Us
PKF O’Connor Davies has helped hundreds of companies across many industries determine their ERC qualification, calculate their credit and help them file amended payroll tax returns. We’ve also assisted clients in contacting the taxpayer advocate to expedite their ERC refunds.
If you have questions about the employee retention credit, contact your client service team or: