The Employee Retention Credit (ERC) Refund-Suit Clock Did Not Stop

1 day ago

7 min read

An employee retention credit claim can move from Compliance to Appeals and back again.

The two-year deadline for filing a refund suit does not care which IRS function has the file.

That is the procedural problem practitioners need to see clearly.

When the IRS disallows an ERC claim or any claim at all by Letter 105-C, the taxpayer generally has two years from the date the notice was mailed to file a refund suit. An administrative appeal does not suspend that period. Neither does an Appeals decision to send substantiation back to Compliance for review.

The case may be moving. The statute is still running.

“New information” has a specific meaning in Appeals

The phrase can sound broader than it is. IRM 8.6.1.7.5 defines new information or new evidence as an item or document related to a disputed issue that was not previously shared with the examiner and that, in the Appeals Technical Employee’s judgment, merits additional analysis or investigative action.

That distinction matters. Appeals is not supposed to function as a continuation of the examination. It cannot be the first finder of fact. It also is not supposed to raise new issues. But Appeals may decide that material evidence arriving for the first time requires Compliance to do work that was never done before the case reached Appeals.

The same IRM provision gives examples of what counts as additional work. Sorting and reviewing a large volume of records may be “additional analysis.” Fact-finding or verifying authenticity may be “investigative action.”

If the evidence is relevant, was not already in the administrative file, and requires that kind of work, Appeals may release jurisdiction and return the case to the originating function, subject to the assessment-statute procedures in the IRM. (What I have been seeing here lately in several of the Post-Appeals Mediations is the taxpayer has provided relevant information that is responsive to examinations request not being transmitted to Appeals. This is a major red flag, and will be discussed in a future post.)

That internal 210-day assessment-statute rule is not the taxpayer’s refund-suit deadline. They are different clocks serving different purposes. Practitioners should not let one be mistaken for the other.

Why ERC cases arrive in this posture

Some ERC claims were disallowed without a traditional, document-heavy examination.

The National Taxpayer Advocate reported that the IRS issued roughly 28,000 ERC disallowance notices during the summer of 2024, many based on risk filters. When taxpayers appealed and then supplied records, many of those cases had to return to Compliance because there had been no prior examination of the evidence. What the Advocate's Office did not report or know is that "exam" never requested information, never spoke with the taxpayer or representative to raise a specific issue, completed a checksheet or similar simple writing to close the case out to Appeals. For experienced tax professionals, this doesn't sound like an examination, does It.

That history explains the posture. It does not eliminate the consequences.

A payroll file, government-order analysis, gross-receipts computation, ownership record, aggregation analysis, or eligibility narrative can be highly relevant without having been part of the original administrative file even if provided to examination. If the "Independent" Office of Appeals first sees the material in Appeals, the agency may treat it as new information even when it addresses the same disputed ERC issue.

The important question is not whether the taxpayer has changed theories. It is whether the evidence was presented earlier, whether it belongs to the existing issue, and whether meaningful examination work remains.

New evidence is not automatically a new issue

Practitioners should separate three concepts that are often collapsed into one conversation.

There is a new issue: a different legal or factual basis for an adjustment.
There is new evidence concerning the existing issue.
There is an undeveloped record: the existing issue reached Appeals without enough examination work for meaningful settlement discussions.

Those are not interchangeable.

IRM 8.6.1.7.2 states that Appeals will not raise new issues and is not a continuation or extension of the examination process. The same provision recognizes that Appeals may consider factual hazards where the Compliance file is not fully developed and the taxpayer provides no new information.

Once new evidence requires investigation, however, the case can move back to Compliance. That handoff may be administratively sensible. It also creates delay, divided ownership, and a dangerous temptation to assume that someone inside the IRS is protecting every deadline.

They are not.

Section 6532(a) keeps running

IRC § 6532(a) generally bars a refund suit filed more than two years after the IRS mails a notice of disallowance. The taxpayer and the IRS may extend the period by written agreement.

The IRS’s current Letter 105-C guidance is unusually direct: an administrative appeal does not extend the deadline, and the IRS cannot issue a refund or credit after the period expires unless the taxpayer timely filed suit or obtained an extension.

That means the practitioner needs a deadline system independent of the case’s location inside the IRS.

Do not treat “assigned to Appeals,” “returned to Compliance,” “under review,” or “waiting for a response” as a tolling event. Those descriptions tell you where the file may be. They do not change the statute.

Hope is also not an extension, although it remains surprisingly popular.

Form 907 is an agreement, not a filing receipt

Form 907, Agreement to Extend the Time to Bring Suit, can extend the § 6532(a) period. But submitting the form is not enough.

The IRS must sign it too, and the agreement must be fully executed before the existing deadline expires.

In April 2026, the IRS announced a streamlined process for certain ERC claimants who are waiting for an IRS or Appeals response and have six months or less remaining on the refund-suit period. Eligible taxpayers can submit Form 907 through the Document Upload Tool by selecting the notice labeled CP 320B.

Taxpayers with a case already assigned to an Appeals Officer should contact that officer directly rather than use the upload route. The National Taxpayer Advocate and current IRS guidance both emphasize the same practical point: request the extension early enough to obtain both signatures.

Uploading an unsigned or taxpayer-signed Form 907 may prove that the taxpayer asked. It does not prove that the deadline moved.

The administrative record still matters

Returning a case to Compliance is not necessarily an adverse judgment on the evidence.

It may mean the material requires verification or analysis that Appeals is not supposed to perform. It may also expose a thin examination file that never put the parties in position for serious settlement discussions.

The practical response is to make the record easier to examine.

Organize the evidence by eligibility theory, quarter, entity, and disputed element. Tie each document to the precise issue it proves. Identify what was previously submitted, when it was submitted, and what is genuinely new. Separate legal analysis from supporting records. Preserve proof of delivery.

If Compliance asks questions, answer the questions actually asked. If the agency introduces a different rationale, identify it as such and preserve the taxpayer’s opportunity to respond.

The goal is not volume. The goal is a record another IRS employee can understand without conducting an archaeological dig.

A practical response when Appeals sends the file back

Calculate the § 6532(a) deadline from the mailing date of the disallowance notice and calendar advance warnings.
Confirm whether any prior Form 907 exists and whether both the taxpayer and the IRS signed it before the original deadline.
Ask Appeals to identify the evidence treated as new and the analysis or investigative work the originating function must perform.
Create an index showing what was submitted before examination closed, what was added in Appeals, and how each item relates to the existing disputed issue.
Monitor the Compliance handoff and keep proof of every submission.
If six months or less remains, evaluate the current Form 907 process immediately rather than waiting for the next status update.
Preserve the refund-suit option while administrative review continues.

That last point is not a prediction that every case should be litigated. It is basic deadline protection.

PAM comes after an actual Appeals impasse

Post-Appeals Mediation can be valuable when a limited number of legal or factual issues remain unresolved after Appeals settlement discussions.

Rev. Proc. 2014-63 says PAM is generally available only after those discussions are unsuccessful and, ordinarily, when the other issues have been resolved. The written mediation agreement must specify the issues the parties have agreed to mediate.

That structure matters in an ERC case.

PAM is designed to help parties work through a defined settlement impasse. It is not the first examination of a box of payroll records. If basic eligibility facts are still being gathered or verified, the case may not yet be ready for productive mediation.

Record development and deadline protection therefore come first. Once the evidence has been examined, the issues are defined, and Appeals has engaged in settlement discussions, PAM may provide a useful next step.

The takeaway

An Appeals-to-Compliance handoff can be procedurally appropriate and still create serious risk.

The taxpayer needs someone tracking two things at once: the quality of the administrative record and the independent refund-suit deadline. A better record may improve the administrative outcome. A protected deadline preserves the forum if the administrative process does not finish in time.

If an ERC disallowance is moving between IRS functions—or sitting still while the deadline moves—contact us. EXFEDTax helps taxpayers and practitioners develop the record, protect procedural rights, and evaluate the right path through Appeals and Post-Appeals Mediation.