The IRS announced on April 27, 2026, a new option letting some business owners extend the two-year deadline that follows an Employee Retention Credit disallowance, according to IR-2026-58. Taxpayers who received a Letter 105-C or 106-C disallowing their ERC claim normally have two years from the letter's date to either pursue an administrative appeal or file a refund suit in court. Missing that deadline forfeits the claim permanently, even if the IRS later would have ruled in the taxpayer's favor. The new Form 907 process lets eligible taxpayers formally request more time before that window closes.
What changed
Business owners can use Form 907 only if they meet both of two conditions: they are still waiting on the IRS to act on their response to the disallowance letter, and six months or fewer remain before the two-year deadline expires. The IRS says a fully executed Form 907 gives the agency more time to consider the disallowance administratively and gives the taxpayer more time to file suit if the administrative route does not resolve in their favor. Eligible taxpayers submit the form through the IRS Document Upload Tool at IRS.gov/DUTReply, selecting notice "CP320B" from the dropdown, and the IRS responds in writing on whether the extension is approved.
Who is affected
The change matters most for the large pool of business owners still working through ERC claims filed during the pandemic-era credit's peak popularity, many of which the IRS has been auditing and disallowing at scale as part of its broader ERC compliance push. Owners who filed a timely response to a disallowance letter, but whose case has languished in the IRS's backlog without resolution, are exactly the group the new process is meant to protect from losing their appeal rights purely due to processing delays outside their control. ERC claims often ran into the hundreds of thousands of dollars for mid-sized employers, so a missed deadline on a technicality can represent a meaningful, permanent loss for a small or midsize business.
The after-tax math
Example: a business owner has an ERC claim for $180,000 disallowed, and the IRS still has not responded to their appeal five months before the two-year suit deadline.
| Action | Outcome |
|---|---|
| Do nothing and wait past the two-year deadline | Forfeits the right to sue for the $180,000, regardless of the claim's merits |
| File Form 907 before the six-month window closes and it is approved | Preserves the right to pursue the $180,000 claim administratively or in court after the original deadline |
For a claim of this size, the extension option is the difference between keeping a live path to recovering the credit and losing it entirely on a technicality unrelated to whether the underlying ERC claim was valid.
Moves to discuss with your advisor
- Business owners with an open ERC disallowance should calendar the two-year deadline from the exact date on their Letter 105-C or 106-C, not the date they received or responded to it.
- Anyone within six months of that deadline with an unresolved appeal should evaluate filing Form 907 promptly, since the option only exists in that narrow window.
- Owners weighing whether to pursue an administrative appeal versus heading straight to a refund suit should discuss the trade-offs with a tax attorney, since the two paths have different cost, timeline and evidentiary considerations.
What to watch
The IRS continues to process a large volume of ERC claims and disallowances, and the agency's reduced workforce has been cited elsewhere this filing season as a factor in processing delays. Business owners with pending ERC matters should watch for further guidance on how Form 907 requests are being processed in practice, since the tool is new and its real-world turnaround time is not yet established. Business owners who never received a disallowance letter but are still awaiting an initial determination on an ERC claim are not covered by this specific process, since Form 907 applies only after a disallowance has already been issued.
Sources
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
