The Employee Retention Credit, or ERC, was a federal tax credit created during the COVID-19 pandemic to encourage businesses to retain employees. The window to apply for the credit officially closed on April 15, 2025, but as of May of 2025 the IRS still had almost 600,000 unprocessed claims. Today, National Taxpayer Advocate Erin Collins renewed her call for the IRS to process all pending claims. Collins urged the IRS to process all claims promptly – whether that means allowing them, disallowing them, or referring them for audit. “Taxpayers have waited far too long for these refunds. As a practical matter, the IRS has been devoting resources preparing for and administering the filing season, and as a consequence, some cases may languish,” Collins said. She believes, however, there is an end in sight for the initial processing for the vast majority of claims but notes the IRS still has work to do.
“For companies that have protested a claim disallowance, the IRS needs to allocate resources to move these cases toward closure and ensure that the two-year period under IRC § 6532 to bring suit for a refund is protected by executing Form 907, Agreement to Extend the Time to Bring Suit, in appropriate cases. Frustratingly, the IRS does not offer taxpayers or practitioners a convenient way to submit Form 907, forcing many to seek TAS assistance. And, unfortunately, businesses that have protested their notices of claim disallowance are seeing little to no movement,” Collins added.
The backlog of unprocessed ERC claims has serious implications. As Collins notes, when the IRS denies or disallows a claim for refund, the taxpayer is required under IRC § 6532 to file suit within two years of the date of disallowance. The only way to extend that time period is to execute IRS Form 907, Agreement to Extend the Time to Bring Suit. But there is no easy way to get this form executed. The IRS, and not the taxpayer, must agree to extend the amount of time during which the taxpayer can sue the IRS. Many taxpayers who have received a notice of disallowance related to an ERC claim have appealed the disallowance by filing a protest and requesting a hearing at the IRS Independent Office of Appeals. But often there’s little to no communication after a protest is sent. So taxpayers who need to speak to someone about getting Form 907 signed have no one to call, and that results in an influx of cases relying on the Taxpayer Advocate for help.
A common misconception is that as long as the case is at Appeals, there is no need to file a lawsuit. That is not the case. Unless the IRS executes Form 907, even if a case is being considered at Appeals, if two years passes from the date of disallowance, the claim will automatically be considered void. This is because IRC § 6514 provides that if the time for filing a lawsuit expires, then the IRS may not issue a refund.
Practically speaking, this means that the IRS can disallow a claim at the examination level, take over two years to decide an appeal, and then the whole claim will be considered void because the very agency deciding the appeal took too long. Taxpayers therefore need to either find someone at the IRS who will execute Form 907, file suit, or abandon the claim. Calendaring the date on which a lawsuit must be filed is critically important.
Processing the backlog and paying the claims timely is meaningful for an additional reason: when the claims are eventually paid, taxpayers will earn interest on the funds they receive from the date that the claim was made. The sooner the IRS can process the claims and get the funds to the taxpayers, the less money the public will have to pay as a result of the processing delays.
The IRS should prioritize processing the ERC backlog for another, equally important reason. Congress wanted to get these funds in the hands of struggling businesses as soon as possible. Many businesses have closed while awaiting these much-needed funds. This is one of the many reasons why it is important for the IRS to receive adequate funding. Taxpayer service suffers when the IRS doesn’t have the resources necessary to process claims for refund. Collins has urged the IRS to complete processing of all ERC claims by the end of 2025, and I know I speak for the hundreds of thousands of taxpayers awaiting resolution of their claims by joining that call to action.
The IRS did not respond to a request for comment by publication time.