1. What Is Happening with Your ERC Refund Claim?
An existing ERC claim can remain pending, enter examination, be disallowed in whole or in part, or move into the IRS Independent Office of Appeals. Each stage creates different decisions and deadlines.
Already-filed ERC claims raise different issues from new claims, particularly when processing delays, examination, disallowance, or litigation deadlines are involved.
Pending or Delayed ERC Refund Claims
A pending ERC refund does not necessarily mean the IRS has accepted or rejected the employer's eligibility.
Depending on IRS status, a claim may still be awaiting review, connected to an examination, pending payment or disallowance, or awaiting action on records already submitted.
Review should reconstruct the claim quarter by quarter using records such as:
Forms 941 and 941-X or other applicable employment tax returns
Payroll and wage records
Government-order documentation
Gross-receipts records
PPP documentation
ERC calculations
IRS correspondence
Employment-tax refund claims are period-specific, so the record should identify the return and taxable period associated with each disputed ERC quarter.
Filing date can independently affect whether a refund remains legally available.
For the third and fourth quarters of 2021, federal legislation enacted on July 4, 2025 generally bars the IRS from allowing or refunding ERC after July 4, 2025 when the claim was filed after January 31, 2024, even if the employer otherwise met the eligibility requirements.
A long IRS processing period therefore does not by itself establish entitlement to payment or satisfy every prerequisite to a federal refund suit.
Audited or Disallowed ERC Claims
An examination and a formal claim disallowance are different procedural stages.
Employers still responding to an IRS examination may need separate tax audits and adjustments analysis. Litigation risk increases once the IRS formally rejects all or part of the requested refund.
Letter 105-C is a legal notice that the IRS disallowed a claim for credit or refund.
Letter 106-C generally reflects a partial claim disallowance. In some cases, it may disallow the ERC in full while allowing another adjustment on the same return.
Review the notice for:
The affected quarter
Amount disallowed
Reason for disallowance
Date of the notice
Appeal rights
Supporting records requested
Remaining refund-suit period
Any response should address the reason actually stated by the IRS rather than repeat a generic ERC eligibility submission.
2. When Can an ERC Refund Claim Move to Federal Court?
An ERC lawsuit is a federal tax refund action against the United States, not a suit naming the IRS as the defendant.
Internal Revenue Code §§ 7422 and 6532 impose administrative and timing requirements before and after the dispute becomes eligible for federal litigation.
Pending Claims and the Six-Month Rule
Section 7422 generally requires a duly filed administrative claim for refund or credit before a federal refund action can be maintained.
Section 6532(a) generally prevents the action from beginning until six months after the required refund claim was filed, unless the IRS renders a decision sooner.
Reaching the six-month point does not make every delayed ERC claim ready for litigation. An employer should confirm:
A timely and valid refund claim was filed
The disputed quarters and amounts are identified
Required administrative procedures were followed
The refund grounds are supported by the existing record
The proposed court claims were fairly presented to the IRS
Treasury Regulation § 301.6402-2 requires a refund claim to state each ground for the requested refund and facts sufficient to inform the IRS of its basis.
Under the substantial-variance doctrine, a taxpayer generally cannot pursue materially different legal or factual grounds in a refund suit when those grounds were not fairly presented in the administrative claim.
Accordingly, the administrative claim can limit which theories remain available if an ERC dispute reaches federal court.
Disallowed Claims and the Two-Year Litigation Deadline
Formal disallowance starts a separate limitations problem.
Under § 6532(a), a refund suit generally must be commenced within two years after the IRS mails the applicable notice of disallowance by certified or registered mail.
A different trigger applies when the taxpayer files a written waiver of the statutory notice of disallowance. Under § 6532(a)(3), the two-year period begins on the date the waiver is filed. Form 2297, Waiver of Statutory Notification of Claim Disallowance, is used for this purpose in applicable cases.
Administrative reconsideration or Appeals does not, by itself, suspend the two-year period.
Employers waiting for an Appeals decision therefore have to manage two tracks at once:
The administrative effort to obtain allowance of the ERC refund
The deadline for preserving a federal refund action
If the period expires without a timely suit or effective written extension, the employer may lose the ability to obtain the refund even if administrative review remains unresolved.
3. ERC Appeals and Protecting the Right to Sue
IRS Appeals can provide an opportunity to contest a disallowance without immediately litigating, but the administrative process and the refund-suit deadline operate separately.
IRS Independent Office of Appeals
An ERC appeal should respond to the stated disallowance reason for each disputed quarter.
Depending on the issue, the record may need to address:
The eligibility theory asserted
Government-order or gross-receipts evidence
Qualified wages and employee counts
Health-plan expenses
PPP wage allocation
Credit calculations
Filing timeliness
Rather than resubmitting the original claim file, the protest should connect the IRS's stated position to the evidence and law supporting the employer's response.
Throughout that process, the § 6532 limitation date still requires separate attention.
Form 907 and the Two-Year Deadline
Requesting Appeals does not automatically extend the two-year period for filing an ERC refund lawsuit.
The IRS introduced a streamlined Form 907 process in 2026 for certain taxpayers whose ERC claims were disallowed, who responded to the disallowance and are awaiting IRS action, and who have six months or less remaining in the two-year period.
Form 907 is an Agreement to Extend the Time to Bring Suit. Signing or submitting the form alone does not change the deadline.
The process requires:
The taxpayer to complete and sign the agreement.
The IRS to review the request.
An authorized IRS representative to countersign the agreement.
Execution by both parties before the existing two-year period expires.
Taxpayers with an assigned Appeals Officer may address the extension through Appeals.
Only a fully executed agreement changes the applicable deadline. Sending Form 907 to the IRS is not enough.
Form 907 and Form 2297 serve different functions. Form 907 extends an existing period by agreement, while a Form 2297 waiver can start the two-year period without requiring the IRS to mail the statutory notice of disallowance.
4. Building an ERC Refund Litigation Record
A federal refund case must establish entitlement to the credit, the amount sought, and a litigation theory grounded in the refund claim presented administratively.
Eligibility and Refund Grounds
Evidence should match the theory actually asserted for each quarter.
Depending on the claim, that may include:
A qualifying government order and records showing its operational effect
Gross-receipts source data and comparison-period records
Recovery startup documentation where applicable
IRS correspondence addressing the asserted refund grounds
The objective is to connect the grounds fairly presented to the IRS with evidence capable of supporting those same grounds in court.
Introducing a materially different factual or legal theory only after litigation begins can create a substantial-variance issue.
Payroll, PPP, and Credit Calculation Records
The refund amount also needs a defensible calculation record.
Relevant materials can include:
Forms 941 and 941-X
Payroll registers and employee-level wage data
Health-plan expenses
ERC workpapers
PPP forgiveness records
Wage-allocation documentation
IRS notices and responses
PPP participation did not automatically disqualify an employer from ERC, but the same wages generally cannot support both PPP forgiveness and the ERC.
A usable litigation file should show the refund theory presented administratively, the calculations supporting the amount, and the procedural history leading to suit.
What the Government May Seek in Discovery
Filing an ERC refund lawsuit can expose the claim to discovery that goes beyond the documents voluntarily submitted during IRS review.
Depending on the disputed issues, government counsel may seek:
Payroll, W-2, and employee-level wage data
Source records underlying gross-receipts calculations
Government orders and operational records
Internal emails and management communications
PPP and wage-allocation materials
Ownership and aggregation records
Testimony from employees or corporate representatives
Depositions, including organizational-representative testimony where applicable, can test how the claim was prepared, who made eligibility decisions, and whether contemporaneous records support the positions taken in the administrative claim.
Discovery therefore can test both the original ERC theory and the credibility of the factual record supporting the requested refund.
Claims against a PEO, payroll company, or ERC promoter over withheld funds, filing failures, fees, or contractual obligations involve different causes of action and deadlines.
5. Frequently Asked Questions
Potentially. A federal refund action generally requires a duly filed administrative refund claim, and § 6532 ordinarily requires six months to pass unless the IRS decides the claim sooner.
Passing the six-month point does not by itself establish entitlement to the refund or satisfy every other procedural requirement for suit.
No, not by itself.
The two-year period following a formal disallowance can continue while Appeals considers the claim. A timely written extension executed by both the taxpayer and IRS, including an effective Form 907 where applicable, may extend that period.
A qualifying federal tax refund action may be filed in a U.S. District Court or the U.S. Court of Federal Claims.
Under 28 U.S.C. § 1346(a)(1), federal district courts have jurisdiction concurrent with the Court of Federal Claims over qualifying federal tax refund actions against the United States.
District-court venue must be analyzed separately. For a corporate plaintiff, 28 U.S.C. § 1402(a)(2) generally places venue in the judicial district containing the corporation's principal place of business or principal office or agency, with additional rules when none exists in a judicial district.
Forum selection should account for the taxpayer, venue, factual record, procedure, and litigation strategy rather than assume one court is always preferable.
05 Oct, 2026
