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Appealing a Denial of an ERC Claim? Keep An Eye on the Statute of Limitations

By Joel N. Crouch on January 13, 2025
If the IRS denies a taxpayer’s claim for refund, the taxpayer can request that the IRS Office of Appeals (“Appeals”) review the denial of the refund claim. If Appeals upholds the denial of the refund, pursuant to IRC Section 6532(a)(1), the taxpayer can file a refund suit in either United States District Court or the Court of Federal Claims challenging the denial of the refund claim. The suit must be filed no later than two years after the date on which the IRS mailed the initial notice disallowing the refund claim. A taxpayer who does not file a refund suit within two years of the refund being denied waives the refund claim.

Many taxpayers are not aware that the request for Appeals review of a refund claim does not toll, i.e. pause, the running of the two years for filing a refund suit. If Appeals is delayed in considering a refund claim or is continuing to review the refund claim, and the two years for filing a refund suit is approaching, to preserve their right to the refund, a taxpayer may be forced to file a refund suit. Fortunately, Section 6532(a)(2) allows a taxpayer and the IRS to agree to extend the period for filing a refund suit beyond two years by executing a Form 907, Agreement to Extend the Time to Bring Suit. To be effective, the Form 907 must be signed by both the taxpayer and the authorized IRS employee prior to the two-year deadline for filing a refund suit.

In a prior blog post, we discussed the IRS notifying employers that they had two years to request Appeals review of an ERC denial, ERC Update: More Time For Appeals to be Filed and see the IRS webpage, Understanding Letter 105-C, Disallowance of the Employee Retention Credit . This two-year period to request Appeals review does not extend the two-year period for filing a refund lawsuit, and we know the IRS is being inundated with requests for review of ERC denials. Appeals has limited time and resources, therefore the longer an employer waits to request Appeals’ review of an ERC denial, the greater the chance the employer will have to either negotiate the execution of a Form 907 or file a refund suit. Otherwise, the employer may waive their ERC refund.

If you have any questions about this article or any civil or criminal tax matter, please contact me at (214) 749-2456.