For many of our clients, a disallowed Employee Retention Credit (ERC) claim means stress, a tight deadline, and an uphill battle to revive their claim. IR-2026-58, issued by the IRS on April 27, 2026, addresses one of those issues by introducing a streamlined process that allows eligible claimants to extend the two-year deadline to file a refund suit, via a Form 907 submission through the IRS Document Upload Tool.
ERC Response Timeline
The ERC helped employers maintain payroll and sustain their workforce during the COVID-19 pandemic. As of June 2025, the IRS claims to have processed nearly 5 million claims for this credit. By year-end 2025 the IRS reported it had closed nearly all 5 million total claims – but still had a hefty 41,000 cases remaining in formal examination or appeal.
Whenever a claimant receives a Letter 105-C or 106-C ERC disallowance letter, there is a strict two-year window from the date of the notice for the taxpayer to challenge the decision. This is the statute of limitations for filing a refund suit in federal court or submitting a formal appeal.
If the claimant fails to respond within the two-year timeframe, he waives his right to contest the IRS’s determination. The government can legally close the case and keep the refund, even if the claim is valid.
There have been many voices of protest over the IRS’ handling of ERC claims and correspondences. The National Taxpayer Advocate’s 2025 Annual Report to Congress chastises the IRS and asserts that, “The IRS provides little or no guidance on how to request an extension using Form 907, does not display the expiration date on the notice of disallowance or on taxpayer accounts, and offers no clear submission instructions. As a result, taxpayers may unknowingly lose their right to a refund or judicial review through no fault of their own.”
The TAS concluded by recommending that the IRS establish a standardized process for Form 907 extensions by April 30, 2026, with a centralized unit to handle routing and approvals. This would address the current backlog with a transparent system for tracking and executing extension requests.
Navigating Appeals
In guiding numerous clients through the ERC litigation or appeals process, we have found that determining the deadline date is a constant stumbling block.
As noted by the TAS, the IRS does not clearly cite the two-year deadline date on their notices or online portals. The date is determined from the date of the disallowance letter, not when the taxpayer receives the notice or when he files a protest. Claimants, and their accounting representatives, are forced to attentively track the calendar years forward to calculate, and avoid, an expired deadline. A miscalculation of even a few days can end in losing the right to file suit in federal court or the right to appeal.
To add to the confusion, we have seen clients receive disallowance letters with no explanation or reasoning provided, leaving them close to deadline with no idea how to challenge the disallowance or prepare documentation to justify their claim.
The timeline for the appeals process is also murky. If a claimant chooses to file an appeal with the IRS Independent Office of Appeals, he is subject to the same two-year deadline. The IRS encourages responding with an appeal within 30 days, but nowhere does it clearly state that a taxpayer also has the right to file an appeal at any point within the two-year period. Taxpayers may be unaware that the informal 30-day appeal window is an administrative guideline, not a hard statutory bar, whereas the deadline for suit is statutory.
Eligibility Requirements
The IR‑2026‑58 introduces a limited and highly specific pathway for extending that two‑year deadline.
Eligibility for an extension, as per IR-2026-58, requires that two conditions be met.
- First, the taxpayer must be “waiting for the IRS to consider their response to the notice of disallowance on Letter 105-C or 106-C”.
- Second, the taxpayer must have only six months or less remaining on the two-year period.
In a strange twist, if a taxpayer has not yet sent the IRS a response to their Letter 105-C or 106-C, they are not “waiting for the IRS to consider their response.” Therefore, they do not meet the first eligibility condition, and the streamlined process described is not available to them at that point. The language of IR-2026-58 implies that a substantive response must be already pending for the taxpayer’s claim to be eligible for extension.
Not the Safety Net It Appears to Be
While it may look like TAS’ dreams have come true with the issuance of IR-2026-58, the guidance includes two practical flaws. The average claimant is confused about when the “clock” starts, cannot utilize the IR-2026-58 extension option if he hasn’t yet responded to his disallowance letter, and finally, there is inherent vulnerability for those who aren’t yet at the “emergency” six-month mark.
The Form 907 new avenue of extension is restricted to taxpayers with six months or less remaining on their two-year deadline. That means that taxpayers who are 12 or 18 months away from their deadline cannot take advantage of the streamlined process yet, even though they are stuck in the same backlogged review system. Taxpayers are left to keep track of their looming expiration date, wait until they hit that emergency window, and then scramble for an extension at the eleventh hour.
The issuance of IR-2026-58 is a positive move forward in that it performs triage for ERC claim “emergency” cases. By introducing an extension option, the IRS is acknowledging that its deadline structure is faulty. The new process will allow the IRS more time to process claims and will likely keep more taxpayers out of court. It will give stressed taxpayers a real opportunity to resolve their disallowance administratively rather than getting trapped in extended tax litigation.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
