IRS streamlines the ERC process

The employee retention credit (ERC) may feel like old news, but for many clients, the work is ongoing. Audits, appeals and even disallowance notices continue to move through the system. 

Why ERC claims still matter

The original ERC review process created confusion. Many taxpayers received disallowance notices with limited explanation. Others were unsure whether they were in an audit or an informal review. Timelines were unclear and cases often remained unresolved for extended periods.

Under §6532(a), taxpayers generally have two years from the date of mailing of the disallowance notice, typically Letter 105C or Letter 106C, to take action, or their refund is lost if that period expires. 

During that time, the taxpayer must file a refund suit in a U.S. district court or the U.S. Court of Federal Claims, reach an agreement with the IRS and receive the refund, or execute an extension of time to continue resolving the issue.

If none of these actions occur within that two-year period, the outcome is final. The IRS cannot issue a refund, even if the claim is otherwise valid. The taxpayer also loses the ability to litigate the claim. This combination of strict deadlines and an unclear process created real risk for taxpayers and their advisors.

What has changed

Beginning April 27, 2026, the IRS began sending Notice CP320B on a rolling basis to certain taxpayers. This notice is sent to taxpayers who responded to an ERC disallowance and have six months or less remaining in the two-year statute of limitations.

Notice CP320B alerts taxpayers to the approaching deadline and explains how to request an extension using Form 907, Agreement to Extend the Time to Bring Suit. If Form 907 is signed by both the taxpayer and the IRS before the two-year period expires, it extends the time to file suit and gives the IRS additional time to consider the claim administratively.

The IRS has also simplified submission. Notice CP320B includes a QR code linking to a fillable Form 907. Taxpayers can print, sign and submit the form through the IRS Document Upload Tool. The IRS then reviews the submission to confirm the taxpayer meets the criteria. If so, the IRS executes the form and returns a signed copy.

In most cases, the extension is limited to two years, but it may be renegotiated if additional time is needed.

Why this shift matters

The new process does not reduce the importance of a complete initial response to the disallowance notice. Taxpayers should submit all relevant factual support and legal analysis as early as possible. That means the initial response to a disallowance notice is critical.

How to approach the new process

Treat the response as an audit defense. Provide complete documentation. Clearly explain eligibility and support positions with facts and analysis. Address any gray areas directly.

Do not assume there will be another opportunity to strengthen the case. If the IRS does not review it early, Appeals may not consider it. The streamlined process is intended to reduce delays and limit repeated review between the IRS and Appeals. However, it does not reduce the burden of proof. The responsibility to support the claim remains with the taxpayer.

Protecting your client’s rights

The National Taxpayer Advocate has emphasized the need for transparency and fairness. Taxpayers should receive clearer explanations and meaningful opportunities to respond.

Tax pros need to identify gaps in IRS reasoning and ensure the client’s position is fully presented.

What taxpayers should do now

Tax professionals should take a proactive approach as the IRS implements this process.

• Track the two-year deadline. The IRS does not display this date on notices or transcripts. Missing it can deprive the client of their right to a refund.
• Respond when Notice CP320B is received. Form 907 must be signed by both the taxpayer and the IRS before the statute expires to be valid.
• Correctly follow the instructions. Errors in completing Form 907 can delay processing or prevent execution.
• Submit Form 907 if the client qualifies. If Notice CP320B is not issued, Form 907 can still be submitted proactively to preserve rights.
• Maintain documentation. Keep records of all communications and retain a copy of the executed Form 907. This supports the client’s position and protects against future issues.

Key takeaway

The ERC streamlined process changes where the work happens, not how important it is. The initial response now carries more weight than ever. Prepare early, document thoroughly and protect the client’s rights at every stage. You are not simply responding to a notice. You are building the record that determines whether the claim is allowed.