Years after the COVID-19 pandemic era Employee Retention Credit (ERC) program officially ended, the fight over who qualified for it drags on. Now, the IRS has announced that some taxpayers who were denied their claims for the credit can extend the period for its Independent Office of Appeals to review their responses. The goal? Offering taxpayers a path to avoid going to court to litigate their denied ERC credit claims.

What is the ERC Program?

The ERC program was intended to help businesses keep the lights on during the pandemic. Under the ERC program, eligible employers included those that paid qualified wages to some or all employees after March 12, 2020, and before January 1, 2022. Typically, to qualify, a business needed to demonstrate that a government order fully or partially suspended operations due to COVID-19 during 2020 or the first three calendar quarters of 2021, or that the business experienced a specific decline in gross receipts during the relevant periods in 2020 or the first three calendar quarters of 2021. Some businesses may also qualify as recovery startup businesses for the third or fourth quarters of 2021.

The amount of the credit was significant. For 2020, the credit was 50% of up to $10,000 in wages per year, meaning it could be as high as $5,000 per employee. In 2021, it was much more generous: 70% of up to $10,000 in wages per quarter, meaning it could be as high as $21,000 per employee.

What was the Problem with the Program?

According to the IRS, the ERC program was a magnet for fraud. In September 2023, citing concerns about improper ERC claims, the IRS announced a moratorium on processing new ERC claims.

In December 2023, the IRS also announced a voluntary disclosure program for businesses that wished to repay funds they received after filing erroneous ERC claims. That was followed by a second ERC voluntary disclosure program, which applied only to tax periods in 2021.

Businesses that didn’t qualify for the voluntary disclosure program but submitted a questionable claim could also consider a withdrawal.

Despite those options, the IRS still faced a massive backlog of ERC claims that it considered fraudulent.

What Happened to Address the Fraud?

Congress put an end to some of what were considered last-minute claims—and, the IRS felt, the most likely to be fraudulent—with limitations under the One Big Beautiful Bill Act. Specifically, the law (section 70605(d) of OBBBA) prevents the IRS from allowing or refunding ERC claims after July 4, 2025, for the third and fourth quarters of 2021 if claims were filed after January 31, 2024, even if you otherwise met eligibility requirements.

The IRS also started issuing disallowances for claims it felt did not qualify for the credit.

How Do I Know If My ERC Claim Was Disallowed?

If your claim is disallowed, you should have received Letter 105-C or 106-C.

According to the National Taxpayer Advocate, in the summer of 2024, the IRS issued approximately 28,000 disallowance notices, many of which were based on the results of risk filter analyses rather than prior examinations.

What Does Letter 105-C Mean?

Letter 105-C is your notice that the IRS disallowed or denied your ERC claim. Generally, Letter 105-C includes the reason for the IRS’s decision, the date of the decision, and the tax year or period for which the claim is denied. It also explains your appeal rights and the time to file suit if you wish to challenge the denial in court.

What Are My Options If I Receive Letter 105-C or 106-C?

You generally have two years from the date of your letter to resolve your claim with the IRS or to file a refund suit in federal court.

One option to resolve the claim is to file a protest with the Independent Office of Appeals—and many taxpayers did just that. But many of these cases were routed to IRS Compliance for initial review because there had not been any previous examination. This happened while the two-year period was still running (filing an appeal doesn’t extend the statute of limitations).

Add that to the existing caseload for Appeals, and the protests were just sitting.

What Happens After the Two-Year Period Ends?

After the two-year period ends, the IRS cannot issue you a refund, even if the agency agrees with you after reviewing your response. The deadline varies by the date of the original 105-C or 106-C letter.

In fiscal year 2025, the average time from the initial taxpayer request for an appeal to resolution of all cases – not just ERC cases – including both IRS Compliance and Appeals review, was 337 days. That means that even if you filed a timely protest, you may be approaching the end of the two-year period. To protect their interests, some taxpayers are filing lawsuits in federal court to preserve their claims which can be time-consuming and expensive.

What is the IRS’s Proposed Solution?

Under current law, you and the IRS can agree in writing to extend the time to file suit if both parties sign Form 907 before the two-year period expires. Historically, this request was typically initiated by the IRS.

However, due to the number of pending ERC claims with Appeals, the IRS will now allow you to request an extension if you qualify.

How Do I Know If I Qualify?

You may be eligible to request an extension if you:

• Previously responded to an ERC claim denial reported on Letter 105-C or 106-C; and
• Have six months or less remaining before your two-year deadline expires.

How Do I Make the Request?

If you have requested an appeal with the Independent Office of Appeals and know your assigned Appeals Officer, contact them directly to request an extension of your time to file suit.

If you do not know your assigned Appeals Officer, or if you otherwise qualify, you may submit Form 907 via the IRS Document Upload Tool (DUT) by visiting IRS.gov/DUTReply and selecting notice “CP320B” from the drop-down menu to request an extension. You’ll be informed in writing whether the IRS has agreed to the extension—both parties must sign the form before the original two-year deadline expires for it to count.

Can I Use the Upload Tool for Other Disallowances?

No. There are a lot of other types of disallowances. In 2025, the IRS issued about 720,000 Notices of Claim Disallowance, of which the ERC notices were only a small fraction. But, you cannot use the tool to submit Forms 907 for disallowances unrelated to Letters 105-C or 106-C. Submit these requests through the IRS’s normal processes.

Will the IRS Let Me Know If I Am Eligible?

Maybe. The IRS says it will send Notice CP320B to taxpayers it has identified as eligible for the new submission method. The notice includes a QR code linking to a fillable Form 907 that the taxpayer can print, sign, and electronically submit via the upload tool. Step-by-step instructions are also available at IRS.gov/CP320B.

But it’s possible that you could qualify but not receive notice.

What If I Don’t Receive Notice?

You may be eligible to extend the time even if you don’t receive Notice CP320B. Step-by-step instructions are available at IRS.gov/erc105c and IRS.gov/erc106c for taxpayers who believe they meet the criteria, even if you didn’t receive a letter.

What Should I Do If I’m Not Sure Whether I Qualify?

If you received an ERC claim disallowance notice and you don’t know how to check the deadline to see if you qualify, check out the information on IRS.gov: Understanding Letter 105-C, Disallowance of the Employee Retention Credit, or Letter 106-C, Claim Partially Disallowed. If you still have questions, call the phone number listed on your most recent IRS notice or check with your tax professional.

What If My Request Gets Bounced?

If corrections are required, or you do not otherwise qualify, the IRS will notify you by sending a Letter 3064C explaining either how to correct your Form 907 or why you do not otherwise qualify.

Do I Need to Do Anything Else if I Have Filed a Claim or an Appeal?

Not right now. The IRS says it will continue processing ERC claims and appeals in accordance with its established procedures.