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IRS Opens New Door for Taxpayers Racing the Clock on Denied ERC Claims

Western CPE Staff

Businesses fighting a denied Employee Retention Credit (ERC) claim got a break from the IRS. On April 27, 2026, the IRS announced a new streamlined process that lets qualifying taxpayers extend the two-year statutory window for either settling their dispute administratively or taking the IRS to federal court. The change is aimed at filers who have submitted a response to a disallowance notice and are still waiting on the IRS to review it as their deadline closes in.

The Two-Year Window

When the IRS rejects an ERC claim, the taxpayer receives one of two letters:

Letter 105-C — full disallowance of the credit
Letter 106-C — partial disallowance of the credit

From the date printed on that letter, a taxpayer has 24 months to resolve the denied ERC claim. Once the deadline passes, the IRS is statutorily barred from paying out a refund, and the taxpayer loses the right to file suit in federal court.

Streamlining the Process

The legal tool for extending the deadline is not new. The IRS and a taxpayer can mutually agree in writing to extend the period for filing suit, provided both parties sign Form 907, Agreement to Extend the Time to Bring Suit, before the original deadline expires. A countersigned Form 907 buys time on both sides — additional review time for the IRS and additional litigation runway for the taxpayer.

What is new is the submission channel. Eligible taxpayers can now upload Form 907 through the IRS Document Upload Tool. The process works like this:

Go to IRS.gov/DUTReply
Select notice CP320B from the dropdown menu
Submit the executed Form 907

The IRS has committed to giving properly executed forms due consideration and to notifying taxpayers in writing whether the extension is approved. If the agency signs off, a countersigned copy gets returned to the taxpayer or their authorized representative.

Who Qualifies for This Extension?

This is not a universal extension option. The IRS has drawn a narrow eligibility line. Both of the following conditions must be true:

The taxpayer is waiting for the IRS to consider their response to a disallowance notice on Letter 105-C or 106-C
The taxpayer has six months or less remaining on the original two-year period

If a denial does not stem from a 105-C or 106-C letter, the new tool is not the right path. Those situations still need to go through the IRS’s standard processing channels. Submissions falling outside the eligible category will not be handled through this method.

CP320B Notices Are Going Out — But Don't Wait for One

The IRS has begun mailing Notice CP320B to taxpayers it has independently identified as eligible. The notice walks recipients through the new submission method, and step-by-step instructions are posted at IRS.gov/CP320B.

That said, receiving the notice is not a precondition. Any taxpayer who genuinely meets the two-part eligibility test can pursue the extension regardless of whether a CP320B has shown up in the mail. The IRS has published parallel guidance at:

IRS.gov/erc105c — for taxpayers with a full disallowance
IRS.gov/erc106c — for taxpayers with a partial disallowance

Why This Move Matters Now

The scale of the ERC program explains why deadline pressure has become a real problem. According to a February 2026 report from the Government Accountability Office, the IRS had processed nearly 5 million ERC claims as of June 2025, accounting for roughly $283 billion in payments. As the IRS has continued to work through claims, disallowance notices have kept going out — and with each one, the two-year clock has started ticking on another case.

By creating a faster path to a Form 907 extension, the IRS is essentially conceding that its own review timelines should not cost taxpayers their refund and litigation rights. It also helps the agency itself by reducing the incentive for taxpayers to file protective lawsuits simply to stop the clock.

The IRS confirmed it will continue processing ERC claims and appeals under its existing procedures. The new submission method is intended to layer on top of that work — a relief valve for the cases where time, not merit, has become the threat.

For more information on this topic, be sure to check out IR-2026-58.