Form 907 ERC Deadline: The Two-Year Refund Suit Clock and the New IRS Portal | North Star Law Firm

If your business filed an Employee Retention Credit claim and the IRS issued a Letter 105-C or 106-C disallowing the claim, the most important number on your calendar is not the date you appealed. It is the date the disallowance letter was issued. Two years from that date, your right to recover the credit through litigation disappears, even if your administrative appeal is still pending.

Why does the two-year deadline for an ERC refund suit start with the disallowance letter?

This rule catches more taxpayers than it should. The general assumption is that filing an administrative appeal stops the clock, the way an appeal of a tax assessment generally tolls collections under various statutes. But the limitations period for filing a refund suit under IRC § 6532(a)(1) does not work that way. The statute provides that no suit for refund may be brought after the expiration of two years from the date the IRS mails a notice of disallowance, and an administrative appeal does not toll that period. Once you receive the Letter 105-C or 106-C, the clock starts running, and it does not stop because you sent in a Form 12203 or asked Appeals to look at the file.

The IRS knows this is a problem. Beginning in 2024, after the agency lifted the ERC processing moratorium, disallowance letters started flowing out at a pace that overwhelmed both Appeals and the taxpayers themselves. Appeals officers were not consistently assigned in time, requests to extend the limitations period were handled inconsistently, and many taxpayers, particularly those represented by ERC mills rather than tax controversy counsel, had no idea the clock was even running. The National Taxpayer Advocate has been flagging this issue in its reports for more than a year. By the time some taxpayers learned about the two-year limit, it was too late to file a refund suit and too late to negotiate an extension.

What is the new IRS streamlined Form 907 portal?

On April 27, 2026, the IRS announced a new streamlined procedure that addresses the most serious version of this problem. Under the new procedure, taxpayers with pending ERC claims who have less than six months remaining to file a refund suit may submit a Form 907, the Agreement to Extend the Time to Bring Suit, through an online portal for IRS countersignature rather than negotiating directly with an unassigned Appeals officer. The IRS will also affirmatively notify eligible taxpayers of the two-year deadline and the availability of the new procedure. The streamlined process applies only to ERC matters. It does not extend to other refund claims.

How does Form 907 actually extend the deadline?

The mechanics of Form 907 are straightforward but worth understanding. Section 6532(a)(2) authorizes the taxpayer and the IRS to extend the two-year limitations period by mutual written agreement entered into before the period expires. Form 907 is the official vehicle for that agreement. Once countersigned by the IRS, the form establishes a new outer date by which a refund suit must be filed. Critically, the extension is not effective until both parties have signed. A Form 907 sent to the IRS but not yet countersigned does not stop the clock. Practitioners who treat their submission of the form as the operative event have learned this lesson the hard way.

How do I triage a portfolio of disallowed ERC claims?

For a portfolio of disallowed ERC claims, the practical question is how to triage. The best approach starts with a calendar exercise. For each disallowance letter received, identify the precise issuance date and add two years. That is the absolute outer date for filing suit absent a Form 907 extension. Then identify the cases where the deadline is within the next nine to twelve months. Those are the priority candidates for the streamlined Form 907 procedure under the new portal. For cases with deadlines further out, traditional management through Appeals or direct dialogue with the assigned officer remains appropriate, but the calendar should be reviewed quarterly because Appeals timelines have not improved meaningfully.

For practitioners managing portfolios of disallowed claims, a workable triage matrix sorts cases into three buckets. Tier one is cases approaching the two-year limit within six months, which require immediate Form 907 submission through the new portal or, if the dispute cannot be deferred through extension, immediate refund suit preparation. Tier two is cases between six and eighteen months from the limit, which warrant active Appeals engagement supported by documented substantiation and a clear timeline for escalation. Tier three is cases more than eighteen months from the limit, which can sustain longer Appeals timelines but should still be calendared for quarterly review. The matrix is mechanical, but the discipline matters. Without a triage system, individual cases slip past their deadlines while attention is paid to the next disallowance letter.

When should I file a refund suit under § 7422 instead of waiting for Appeals?

A separate question is whether to file a refund suit under § 7422 even when extension is available. Litigation is not always the right choice, but it can be in three situations. First, if the underlying disallowance reflects a legal theory the IRS is unlikely to abandon, such as the agency's position on supply chain disruptions for businesses that did not experience a government order shutdown, Appeals is unlikely to produce a different result and the choice becomes whether to litigate or walk away. Second, if the taxpayer is being asked to repay a refund that was issued in error, the burden in district court or the Court of Federal Claims may be more favorable than in an administrative posture. Third, if the dollars are large enough to justify the costs and the facts are favorable, an early suit can put the case in front of a judge while the IRS's litigation positions are still being developed.

The IRS's recent track record on ERC litigation is informative. The Ninth Circuit's decision in ERC Today, LLC v. McInelly, issued in March 2026, declined to enjoin the IRS from disallowing claims en masse, finding that the agency's procedures protect taxpayers rather than contingency-fee preparers. That ruling discourages the kind of broad pre-disallowance challenges some firms attempted, but it does not affect the merits of an individual taxpayer's claim. A taxpayer with a genuine partial or full suspension of operations under the original ERC eligibility rules, or with a real gross receipts decline, retains all the same defenses on the merits. The disallowance is not the end of the road. It is the beginning of the controversy phase.

Should I file in the Southern District of Texas or the Court of Federal Claims?

A practical question that comes up repeatedly is whether to file the refund suit in the U.S. District Court for the Southern District of Texas or in the Court of Federal Claims. Both forums have jurisdiction over refund actions under § 7422, and the choice depends on several factors. The Southern District of Texas, with its significant tax docket and proximity to Houston taxpayers, offers a familiar venue with judges experienced in tax controversy. The Court of Federal Claims, situated in Washington, offers a single dedicated tax bench, no jury option, and a body of decisions that some practitioners find more predictable for fact-intensive refund disputes. Neither forum is uniformly better. The choice should be informed by the legal theory, the likely composition of the IRS's litigation team, and the strategic posture of the case.

What documentation should I be strengthening right now?

What every ERC claimant should be doing right now, regardless of where the case sits in Appeals, is calendar management. Pull every disallowance letter. Confirm the date of mailing on the envelope and on the letter itself, because there can be a delay. Calculate the two-year date with your tax controversy counsel, not the ERC mill that prepared the original claim. If the mill is not returning calls, that itself tells you something about whether they are tracking deadlines. For any case where the deadline is within the streamlined portal's six-month window, prepare and submit the Form 907 promptly and confirm receipt of the IRS countersignature. Do not assume the form is effective until you see that countersignature in writing.

The other piece of homework worth doing is documenting the file. Many ERC claims were prepared with thin substantiation. Even where the underlying eligibility is real, the documentation of qualified wages, the calculation of partial suspension, and the application of the gross receipts test may be incomplete. Strengthening the substantiation now, while the case is still active, makes the difference between a case that prevails on the merits at Appeals and a case that does not.

What is the bottom line for Houston business owners with disallowed ERC claims?

For Houston business owners and their advisors, the bottom line is that the ERC disallowance phase has become a deadline-driven exercise. The new IRS streamlined Form 907 portal is a meaningful improvement, but it does not change the underlying statute. The two-year period is jurisdictional. Once it runs, the right to litigate the refund is gone.

North Star Law Firm represents taxpayers in ERC examinations, Appeals proceedings, and refund litigation under § 7422, including coordinated portfolio management for clients with multiple disallowed claims.

Frequently asked questions

Does filing an administrative appeal pause the two-year refund suit deadline?

No. The two-year period under IRC § 6532(a)(1) for filing a refund suit begins when the IRS mails the notice of disallowance and is not tolled by the filing of an administrative appeal. The taxpayer must either file suit within two years or obtain a written extension via Form 907 before the period expires.

What is the new IRS streamlined Form 907 portal?

On April 27, 2026, the IRS announced an online portal for submitting Form 907 in ERC disallowance cases where the taxpayer has less than six months remaining to file suit. The IRS will also notify eligible taxpayers of the two-year deadline. The streamlined process applies only to ERC claims, not to other refund matters.

Is the Form 907 extension effective when I submit it?

No. The extension is not effective until the IRS countersigns. A Form 907 that has been submitted but not yet countersigned does not stop the limitations period. Practitioners should retain confirmation of the countersigned form.

When should I file a refund suit under Section 7422 instead of pursuing Appeals?

Refund litigation may be appropriate when the IRS has adopted a legal position unlikely to change at Appeals, when the dollars justify the cost, or when the limitations period is approaching and an extension is unavailable. The choice between Appeals and the courts is a strategic decision that depends on the underlying facts and the IRS's posture.

How do I identify which of my ERC disallowances are urgent?

Catalog every Letter 105-C or 106-C and confirm the date the letter was mailed. Add two years. Cases where the resulting outer date falls within the next nine to twelve months are priority candidates for the streamlined Form 907 portal. Cases with later deadlines should be calendared and reviewed quarterly.