Government Shutdown Could Require More ERC Lawsuits - And Form 907 May Offer No Relief

A federal government shutdown remains in place, and its effects are rippling through the IRS. For employers with pending Employee Retention Credit (ERC) refund claims — or those facing tight procedural deadlines — this is not just an inconvenience. It could be a critical turning point influencing whether litigation will be required.

A key issue is Form 907, “Agreement to Extend the Time to Bring Suit.” Under Internal Revenue Code § 6532(a)(1), once the IRS issues a claim disallowance letter (such as Letter 105C), the taxpayer has two years from the date of that disallowance to file a refund suit in either the U.S. District Court or the Court of Federal Claims.

In normal times, taxpayers and the IRS can agree to extend that two-year period by executing a Form 907 before the statute expires. But during a shutdown, most IRS personnel are furloughed. That means there may be no one available at the Service to sign a Form 907. And without an IRS signature, the agreement is ineffective. The statute keeps running — even though the government is not open for business.

This creates serious exposure for employers with ERC refund claims that have already been denied or partially denied and are now winding their way through administrative channels or litigation planning. Many had expected to buy time through a Form 907 extension, but in the current shutdown environment, that strategy may no longer be viable.

It is critical to remember: the two-year clock under § 6532(a) does not stop because the IRS is closed. The statutory period to file suit continues to run, day by day, regardless of whether anyone at the IRS can process your paperwork.

Taxpayers and their advisors should immediately identify all ERC refund claims for which a disallowance has been issued and determine the precise two-year deadline. If that deadline is approaching, filing suit may be the only way to preserve the claim. Waiting for the government to reopen to execute a Form 907 could be too late.

Past shutdowns have shown how procedural deadlines can quietly erode rights while the IRS is offline. For ERC refund claims — which are often large-dollar and already subject to enhanced scrutiny — the risk is particularly acute.

Takeaway: Employers should not assume they can rely on Form 907 to extend the limitations period during the shutdown. Without an IRS signatory, Form 907 offers no protection. If the two-year statute is closing in, the prudent course is to file suit to preserve the claim.

If you have any questions about ERC matters, or any other civil or criminal tax matter, you can contact me at 214-749-2417 or jglassman@meadowscollier.com.