ERC Disallowance: Two Years to Appeal Letter 105-C, Plus Form 907

Letter 105-C is the IRS legal notice that it denied the Employee Retention Credit you claimed, either as a refund or as a reduction of tax you already owed. Letter 106-C is its partial cousin: the IRS allowed some of the claim and denied the rest. The April 2026 newsroom release treats the two as one category: "When an ERC claim is disallowed by the IRS, taxpayers receive a Letter 105-C or 106-C."^[9]

Read the letter for five items: the reason for the decision, its date, the tax period denied, your appeal rights, and the timeframe to file suit. The date matters most, because every deadline below runs from it, not from the day the envelope arrived. If the reason is thin documentation rather than a substantive eligibility finding, a complete response package usually beats litigation, and assembling that package is what IRS representation is for.

Two clocks start on the date printed on the letter, and they are not the same length. The short one is administrative: "We generally ask that you dispute the disallowance within 30 days to help protect your two-year timeline to request an appeal or file suit."^[4] Missing that 30 day window does not end your rights, but it compresses everything that follows.

The long one is statutory. "Generally, you have two years from the date of Letter 105-C (your original claim disallowance) to file suit. Requesting an appeal doesn't extend this time."^[5] That second sentence is the trap: owners file a protest, wait for Appeals, and let the statute run out. The newsroom release is blunter: "After the two-year period ends, the IRS cannot issue a refund, even if it later decides in the taxpayer's favor after reviewing the disallowance."^[9]

No, not for the tax periods the letter covers. The IRS states it plainly: "If you received Letter 105-C, you're not eligible for the claim withdrawal program for the tax periods covered in the letter. The claim withdrawal program is for businesses with claims that haven't entered processing yet."^[6] Quarters whose claims are still unprocessed can be a different story.

Withdrawal is the cleanest exit when a claim was never supportable, because it asks the IRS not to process the adjusted return that carried it. The test on the main ERC page is short: "You can use this program if your ERC hasn't been paid yet, or if you already received a check for ERC but haven't cashed or deposited it."^[1] Deposit that check and the door closes for good, so an owner who suspects a promoter inflated the claim should decide fast. The IRS also lists the situations that shut the program off outright:

Form 907, Agreement to Extend the Time to Bring Suit, is a bilateral agreement, not a unilateral filing. The newsroom release describes the mechanic plainly: "the IRS and a taxpayer can agree in writing to extend the time to file suit, if both parties sign Form 907 before the two-year period expires."^[8] What you upload is a request. The extension is not in force until the IRS reviews it, signs it, and returns a countersigned copy.

What changed on April 27, 2026 is the delivery channel, not the underlying law. Taxpayers still waiting on the IRS to consider a response to a 105-C or 106-C, with six months or less left on the clock, "may submit Form 907 requesting an extension via the IRS Document Upload Tool"^[10] and select notice CP320B on the upload page. The IRS mails Notice CP320B to taxpayers it has already flagged, but you can qualify without ever receiving it.

One whole category of disallowance ignores eligibility entirely: the claim was filed too late. The IRS publishes the wording it now prints in these letters: "Pursuant to section 70605(d) of Public Law 119-21, commonly known as the Working Families Tax Cuts, no credit or refund with respect to such credit will be allowed after July 4, 2025, for the last two quarters of 2021 unless the claim was filed on or before Jan. 31, 2024."^[7]

The cutoff operates backwards in time. A third or fourth quarter 2021 claim that went out after Jan. 31, 2024 was accepted when it was mailed, and if the IRS had not paid or credited it by July 4, 2025 it is now barred by statute, whatever the underlying eligibility looked like. If that is the reason code on your letter, the eligibility file everyone else is assembling is beside the point: the IRS wants proof of when the claim was filed, such as a certified mail receipt. The wider set of business tax changes in that law is covered in our One Big Beautiful Bill tax changes guide.

Your response has to do two jobs: rebut the specific reason printed on the letter, and prove eligibility for every quarter you contest. The IRS asks first for an explanation and documentation aimed at the initial reason the claim was denied. A letter saying its records show no wages paid needs Form W-2 evidence; a letter saying the claim was untimely needs mailing proof; a letter challenging the amount needs the computation.

The second job is broader. For each disputed quarter the response must support at least one of the three eligibility routes, backed by underlying records rather than a promoter summary. The IRS also asks for a written explanation of why the credit is yours, a description of the trade or business, copies of the computation worksheets, and a statement confirming which wage categories the calculation leaves out.

The credit reached wages paid "between March 13, 2020, and Dec. 31, 2021"^[7] and nothing outside that band. Employers who missed it on the original return claimed it later on an adjusted one: "businesses that file quarterly employment tax returns can file Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund PDF, to claim the credit for prior 2020 and 2021 quarters."^[3]

Those filing windows have closed. The IRS puts the deadline at April 15, 2024 for 2020 tax periods and April 15, 2025 for 2021 tax periods,^[3] and Public Law 119-21 cut off the last two quarters of 2021 earlier still.^[7] A disallowance letter is therefore about a claim already on file. The question is never whether to file a better claim; it is whether the claim on file can be defended inside the two-year window.

Claiming the credit required a matching cut to the wage deduction: "If you file Form 941-X to claim the Employee Retention Credit, you must reduce your deduction for wages by the amount of the credit for that same tax period."^[3] Plenty of owners made that cut while the claim was still pending, so a disallowance leaves an overstated tax bill on a prior-year return.

The IRS position is that once the disallowance is final, meaning you are no longer contesting it or you have exhausted your remedies to argue against it, you may raise wage expense on the return for the year it became final by the same amount you cut when the claim was made. Amending the earlier year is permitted but not required, which spares a protective claim in a closing year. Sequencing that against the protest runs through business tax return preparation.

The IRS publishes a monthly count of what is left, and the pile is far smaller than at the height of the backlog. "As of the week ending 7/4/2026 the IRS has approximately 20,000 remaining ERC claims in various stages."^[2] The update splits that inventory five ways.^[2]

The largest single group is responses to disallowance letters the IRS has not yet reviewed. Those are precisely the taxpayers the Form 907 channel was built for, because the statutory two-year period keeps running while a response waits its turn. If your file sits in that group, treat the extension request as calendar hygiene rather than escalation.

Miami restaurants, contractors, clinics, and small service firms claimed the ERC in volume when the windows were open, often through promoters who are long gone. What is left is a letter, a deadline, and a file nobody can reconstruct. An Enrolled Agent response rebuilds it: eligibility quarter by quarter, the computation worksheets, the government orders or receipts schedules, and a protest that answers the exact reason printed on the letter.

The calendar work matters as much as the substance. We date the two-year period from the letter, decide early whether an Appeals request or a refund suit is the better route, and prepare a Form 907 request when a response sits unanswered and the window is closing. Employment tax filings continue in parallel through payroll services, and owners who came to us for restaurant + food-service tax help get the protest coordinated with the current quarter. To see how representation works in practice, read what an Enrolled Agent does in an IRS audit.