ERC Advance Loans: What Happens When the IRS Refund Never Comes

If you applied for an employee retention credit advance, and the IRS denied your refund or never provided the refund, you may now owe that money back to the lender. Whether you get your refund now turns mostly on deadlines. Miss one, and the refund claim can be lost for good.

New legislation effective in 2025 will effectively slam the door shut on ERC claims for Q3 and Q4 of 2021, disallowing refunds if you haven’t filed by January 31, 2024. Be warned -- filing means postmarked. But if you got Letter 105-C and mailed your claim by January 31, 2024, you may be able to appeal to the IRS Independent Office of Appeals.

Two-year Window

You know it’s coming when you get Letter 105-C or 106-C, which tells you that your refund was either denied or revised, reducing your refund amount. Once you have that letter, there are two years for you to reach agreement with the IRS or file a suit in federal court. After the two-year deadline, the IRS is legally barred from paying your refund even if it agrees you were correct all along. The worst part of this problem is that the two-year window includes the time IRS Appeals might be trying to help you out.

Agreement through IRS Appeals should be the way most cases are handled, except Appeals is swamped with these cases, and the employees in Appeals can’t answer in time. So with a two-year clock ticking down, you can either drop your refund claims, or pay to sue the government in federal court.

Agreement to Extend the Time to Bring Suit

In the past an extension to sue could only be offered to you by an appeals employee and wasn’t something you could ask for. Since April 27, 2026, though, you can request an extension of time yourself. You can request this only if you’ve already responded to the IRS letter, and if no more than six months remains on the two-year deadline. The tool is Form 907, an Agreement to Extend the Time to Bring Suit. It must be signed by you and the IRS before the two-year deadline runs out, and IRS can say no. Form 907 pushes back your deadline to sue, and gives the IRS more time to review your case. Requesting an extension to sue the IRS doesn’t commit you to the government lawsuit step; it only allows you time to do so, in case you need it.

To send Form 907 to IRS, navigate to the IRS Document Upload Tool and answer “No” to the access code request. Then choose CP320B from the drop-down menu of letters and notices and upload the signed Form 907. After that, the IRS reviews your information and gives you a letter telling you if they’ll grant it or not. The IRS currently is sending Notice CP320B to employers who already got one of the denial or revision notices, and in the opinion of the IRS, qualify for an extension. If you got one of those letters but never got an extension notice, you can request one using Form 907 as long as you can make the letter and six-month deadlines.

You don’t even have to wait for the denial letter. If the IRS refuses to acknowledge your claim altogether, or refuses to respond, then six months after filing your claim you can go ahead and sue the IRS. The suit can be filed in either the federal District Court or the Court of Federal Claims.

The Money Lender Still Wants Its Money

As all this happens, though, the money lender still wants its money. One CPA firm warns that a typical ERC advance contract can require you to repay the money, regardless of whether the IRS ever provides a refund. Under the Anti-Assignment Act, a claim against the government can’t be assigned until the claim is actually allowed. With no assignment, the IRS doesn’t need to give the money to the lender.

If you don’t fully qualify to make the claim, consider letting it go. The IRS now has six years to challenge your ERC claims instead of the three years it would normally have. On top of that, filing an ERC claim that is incorrect or excessive can trigger a 20% penalty. If you withdraw the refund claim, the IRS will let you do it if the refund hasn’t been paid yet, or if the check hasn’t been cashed yet. If the claim is withdrawn, it will be treated as if it was never filed, with no penalties or interest. Of course, if you do, you won’t be getting a refund either.

Your next move depends on when you got the 105-C or 106-C letter. If you’ve got a refund claim that is in limbo, check your original letter from the IRS and calculate when that two-year deadline is coming. Talk to your tax advisor, who can offer some options for handling this.