Denied ERC Claim? Form 907 Can Stop the Two-Year Clock

You opened the letter, filed your protest, and have been waiting patiently for the IRS to take a second look at your Employee Retention Credit claim. Everything feels like it is moving forward. Here is the part nobody told you: a strict two-year countdown started the day that denial letter was dated, and it keeps running while you wait — even while your case sits with the IRS Independent Office of Appeals. If that clock hits zero before you act, your right to the refund is gone for good, even if your claim was completely valid.

That is not a hypothetical. In the summer of 2024 alone, the IRS sent out roughly 28,000 ERC disallowance notices, many generated by automated risk filters rather than a human examination. Thousands of small business owners protested and settled in for a long administrative review, unaware that the statute of limitations under tax code Section 6532(a) was quietly burning through their two-year window the entire time.

The good news: in April 2026 the IRS launched a streamlined process that makes it far easier to pause that clock. If your denial is approaching the two-year mark, here is exactly how it works, who qualifies, and the mistakes that could still cost you the credit.

The Two-Year Rule Nobody Puts on the Letter​

When the IRS disallows your ERC claim, you receive either a Letter 105-C (full disallowance) or a Letter 106-C (partial disallowance). From the date printed on that letter, you generally have two years to do one of three things:

1. File a refund lawsuit in a U.S. district court or the U.S. Court of Federal Claims.
2. Reach an agreement with the IRS and receive your refund.
3. Sign a written agreement with the IRS extending the deadline.

Miss all three, and the outcome is final. The IRS is legally barred from paying you the refund — even if it later decides your claim was allowable — and you lose the right to take the case to court. Game over on the merits, decided by a calendar instead.

The trap: appealing does not stop the clock​

This is the misunderstanding that costs businesses their credits. Filing a protest, meeting with an Appeals Officer, or cooperating with a compliance review feels like progress, and it is — but none of it extends the two-year deadline. Only a filed lawsuit, a resolved refund, or a mutually signed extension does that.

Making matters worse, the deadline does not appear on the denial letter itself or on your tax transcripts. You have to compute it yourself from the letter date, and then guard it while the administrative process grinds on. The average case took about 337 days just to move from an appeal request to resolution in fiscal 2025 — and that figure covers all case types, with ERC files often slower because many were routed through an extra compliance review first.

Why ERC Cases Are Especially at Risk​

The ERC backlog created a perfect storm for blown deadlines. Here is how it happened:

• Mass automated denials. The summer-2024 wave of roughly 28,000 disallowances came largely from risk-filter screening, not prior examinations. Business owners who had never been audited suddenly held denial letters.
• Protests routed to Compliance first. Because no examination had occurred before those notices went out, many protested cases were sent to IRS Compliance for an initial documentation review before Appeals would touch them. That review consumed months of the two-year window — time that would normally have elapsed before the clock started.
• A still-enormous queue. The National Taxpayer Advocate estimated about 1.4 million unprocessed ERC claims as recently as mid-2025, and tens of thousands of additional denial letters have gone out since. If your letter is dated in 2024, your two-year mark may already be months away or closer.

Meanwhile, in 2025 the IRS issued roughly 720,000 claim-disallowance notices of all kinds — ERC cases were only a small fraction. The deadline trap is widespread, but the new shortcut described below currently exists only for ERC denials.

The New Streamlined Fix: Form 907 Through the Document Upload Tool​

Working with the National Taxpayer Advocate, the IRS announced in late April 2026 (IR-2026-58) a simplified way to extend the deadline: submit Form 907, Agreement to Extend the Time to Bring Suit, electronically through the IRS Document Upload Tool.

Who qualifies​

You must meet both conditions:

• You are waiting for the IRS to consider your response to an ERC disallowance on Letter 105-C or 106-C (in other words, you already protested or responded and the case is pending).
• You have six months or less remaining before your two-year period expires.

If more than six months remain, the IRS will not take your Form 907 through this channel — you will simply be told you do not qualify yet. Calendar the date and come back when the window opens.

How to submit it step by step​

1. Watch for Notice CP320B. The IRS is mailing this notice — Important Reminder Regarding Your Disallowed Employee Retention Credit Claim — on a rolling basis to taxpayers it identifies as eligible. It includes a QR code linking to a fillable Form 907.
2. Complete Form 907 precisely. Fill in every field exactly as the CP320B instructions direct. Even minor errors can delay processing past your deadline.
3. Upload via the Document Upload Tool. Go to the IRS Document Upload Tool reply portal and select notice CP320B from the drop-down menu, then submit your signed Form 907.
4. No CP320B? You can still file. Eligibility does not depend on receiving the notice. If you meet the two criteria, follow the step-by-step instructions for your letter type on the IRS's Letter 105-C and Letter 106-C guidance pages and submit through the same tool.
5. Wait for the countersignature. The extension is not valid until the IRS signs the form too. A properly executed form gets due consideration, and the IRS will inform you in writing whether it agreed; a countersigned copy goes to you or your authorized representative. If corrections are needed, expect a Letter 3064C explaining how to fix the submission.

If your case is already in Appeals​

The routing depends on where your file sits:

• Not yet assigned to an Appeals Officer: your upload is forwarded to a designated Appeals point of contact, who coordinates review and signing. You will get a letter saying the form went to Appeals — expect further correspondence from there.
• Already assigned: the point of contact forwards your signed Form 907 to that officer, and you finalize the request directly with them. If you know your assigned officer and the statute is inside six months, contact them directly about the extension.

A fully executed Form 907 generally extends the period by up to two years, and it can be renegotiated if more time is still needed.

Five Mistakes That Still Kill Claims​

1. Assuming the protest protects you​

It does not. The single most dangerous belief in this process is that cooperating with review preserves your refund rights. Track the two-year date independently from the letter date and treat it as the real deadline.

2. Waiting for the CP320B notice​

The IRS sends these on a rolling basis as it works through the backlog — there is no guarantee yours arrives with time to spare. If you are inside the six-month window and waiting on a pending response, submit without the notice.

3. Sloppy Form 907 paperwork​

Wrong dates, missing signatures, or selecting the wrong notice code in the upload tool can bounce your submission into a correction cycle while the statute keeps running. Follow the CP320B instructions line by line and keep a copy of everything.

4. Counting on a phone call to fix it​

General IRS phone lines cannot extend the statute for you. The Form 907 — signed by both sides before expiration — is the instrument that matters. A verbal assurance is worth nothing against Section 6532(a).

5. Forgetting the rest of your books​

An extension buys time; it does not win the case. Use the extra months to tighten the substantiation the IRS will actually judge: payroll records tying qualified wages to the right quarters, gross-receipts calculations or government-order documentation supporting eligibility, and clean records of any ERC amount already received or applied. Accurate bookkeeping from day one prevents tax headaches later — and in a dispute, the business with organized contemporaneous records is the one that survives review.

What If You Do Nothing?​

Then the earliest denial letters from the 2024 wave are already approaching, or have passed, their two-year anniversaries. Once the period lapses with no lawsuit, no agreement, and no signed extension, the IRS cannot pay the refund even if a reviewer agrees you qualified. There is no equitable exception for "my case was still pending." That finality is exactly why the Taxpayer Advocate pushed for this streamlined process — administrative delay alone should not decide who gets relief Congress authorized.

Keep Your Financial Records Ready for Whatever Comes Next​

Whether your ERC dispute ends with a hard-won refund or a lesson learned, the underlying discipline is the same: maintaining clear, complete financial records is essential. Payroll journals, quarterly filings, and eligibility workpapers that reconcile to the dollar are what turn a protest into a payment.

Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.