IRS eases ERC appeal timing with new Form 907 option

The IRS gave employers and tax advisers a narrower escape hatch from ERC deadline traps, offering a new Form 907 option for taxpayers waiting on a response to a disallowed Employee Retention Credit claim. The change matters because an executed agreement can extend the time to file suit while the IRS and the IRS Independent Office of Appeals keep reviewing the case, reducing the risk that a taxpayer loses refund rights while an administrative review is still pending.

The new process applies only to certain taxpayers. Under the IRS announcement, a taxpayer must be waiting for the agency to consider a response to Letter 105-C or 106-C and must have six months or less remaining before the two-year period to bring suit expires. The IRS said the Form 907 agreement must be signed by both parties before that two-year period runs out. Once executed, it gives the IRS more time to consider whether the disallowed claim should still produce a refund or credit.

That timing detail is the heart of the issue for KPMG tax controversy and employment tax professionals. ERC disputes have already forced companies to navigate a dense mix of documentation, response deadlines, and appeals strategy. A technically strong position can still be weakened if a client misses the suit window, and the new form is designed to keep the door open while the IRS finishes its review. For advisers at KPMG LLP, that means checking the remaining time on every affected file, confirming whether the client is in the Letter 105-C or 106-C pipeline, and making sure response templates and internal checklists reflect the new extension path.

The IRS has said Letter 105-C is the legal notice that an ERC claim was disallowed, and that it lays out the reason for the decision, the date of the decision, the affected tax period and appeal rights. That makes the notice itself a critical document in post-filing disputes. The agency’s guidance also reminds taxpayers that the ERC applied to qualified wages paid after March 12, 2020, and before Jan. 1, 2022, which means many claims are still working their way through review years after the credit period ended.

For KPMG’s clients, the practical risk is simple: do nothing and the two-year clock can keep running. KPMG has said ERC rules continue to evolve even though the credit expired, and that the IRS is still working through a backlog. The firm also told clients in 2025 that waiting for IRS action can sometimes be the best path, but only if the case is tracked carefully. The new Form 907 option gives taxpayers one more tool, but it does not change the fact that timing can decide whether an ERC dispute ends in refund, credit or court.