Let’s Talk About Tax

On April 27, the IRS announced a new streamlined procedure for taxpayers to request more time to pursue an administrative appeal when the IRS has disallowed a taxpayer’s Employee Retention Credit (ERC) claim.

The ERC was a temporary refundable tax credit offered as an incentive for businesses to keep employees on the payroll during the COVID-19 pandemic. Many taxpayers faced delays in receiving ERC refunds after the IRS temporarily paused payments over suspected abuse and fraud. Once the IRS resumed processing the claims last year, many taxpayers received disallowance notices (Letter 105-C or 106-C) and have sought review by the IRS Independent Office of Appeals.

Taxpayers are often surprised to learn that the period of limitations to file suit in court is not suspended during an administrative appeal. Once the IRS disallows a claim, taxpayers have only two years to resolve the claim administratively or initiate litigation. Otherwise, the IRS will be barred from issuing a refund. While the law permits the IRS and taxpayers to extend the time to file suit by mutual agreement (generally using a Form 907, Agreement to Extend the Time to Bring Suit), taxpayers previously had to make this request directly to the IRS personnel assigned to the case. This proved difficult in ERC cases because of delays in assigning an appeals officer or inconsistent handling of these requests, leaving many taxpayers at risk of running out of time for an administrative review.

Under the new procedure, taxpayers with pending ERC claims who have less than six months to file suit may now submit a Form 907 through an online portal for IRS signature. In addition, the IRS will notify eligible taxpayers of the two-year deadline and the new procedure. It is important to note that the extension is not valid until the IRS countersigns. The new procedure does not apply to non-ERC refund claims.

Taxpayers and their representatives should examine all ERC claim disallowances to identify those where the two-year deadline will expire in six months and promptly submit a Form 907 through the portal. They should also continue to closely track cases approaching this point. For cases in which there may not be enough time to obtain an agreement, taxpayers should discuss with their advisor the possibility of initiating litigation to protect their right to the refund.

For more information or questions, contact Teri Jackson.