- with readers working within the Accounting & Consultancy and Aerospace & Defence industries
The Internal Revenue Service (IRS) Independent Office of Appeals (IRS Appeals) has been slow to resolve Covid-era Employee Retention Credit (ERC) refund claims. As a result, employers with unresolved ERC claims are now faced with a difficult decision — pursuing litigation against the IRS to secure their ERC refunds or losing the refund.
The ERC, which was offered under IRC §3134 as part of the IRS’s COVID-19 pandemic relief program, provided a refundable credit against employment taxes for certain tax periods to help struggling businesses pay their employees. The program has been scrutinized due to fraudulent claims.
In February 2026, the U.S. Government Accountability Office announced that, as of December 31, 2025, the IRS had closed all non-examined ERC claims. Approximately 41,000 claims remained under IRS examination or in Appeals at that time.
Many of the ERC claim disallowances issued in the summer of 2024 have been challenged by employers who filed appeals. However, the two-year deadline to file a refund suit following a disallowance notice is fast approaching, forcing taxpayers to decide how to proceed while their unresolved claims linger in IRS examinations and appeals.
Administrative delay does not eliminate judicial deadlines. Under IRC §6532(a), taxpayers generally have two years from the date a notice of disallowance is mailed to file a refund suit or obtain a written extension from the IRS. A protest to IRS Appeals does not suspend that deadline. Without filing suit or obtaining a written extension (Form 907, Agreement to Extend the Time to Bring Suit), the right to a refund can be permanently lost.
While a Form 907 would eliminate the need for filing a lawsuit, the process for obtaining an agreement from the IRS to extend the time to bring suit has been difficult, and conflicting.
For taxpayers with ERC claims that are pending without action (i.e., where there has not been any disallowance), the statute of limitations analysis is more complex. Some courts have dismissed taxpayer refund suits that were filed more than six and a half years after the claim arose. This timeframe reflects the six-month waiting period before a taxpayer may file suit, plus the six-year statute of limitations for civil claims against the government. IRC § 3702(b). For ERC claims submitted in 2020, the end of this six-and-a-half-year period is quickly approaching. To the extent a court will apply this limitation, a taxpayer with an ERC refund claim may be barred from suit even without a formal disallowance by the IRS.
Businesses facing challenged, delayed, or disallowed ERC claims should evaluate their statute posture without delay in order to protect their right to an ERC refund as protective litigation may be necessary to preserve their potential refunds.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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