Another IRS COVID refund deadline nears. This time for businesses.

The IRS may owe tens of thousands of businesses a COVID-related refund, but companies will need to act quickly to try to claim it, tax experts said.

The employee retention credit (ERC), introduced in March 2020, provided a refundable credit to eligible employers who paid some or all employees even though their businesses were suspended by a government order or experienced a significant decline in receipts. As the pandemic evolved and extended into later years, so did the ERC. Constant changes and slow IRS guidance led to widespread confusion and, eventually, abuse that forced the IRS to put a moratorium on claims on September 14, 2023 until August 8, 2024.

During summer 2024, the IRS also rejected 28,000 claims based on probabilities of fraud rather than actual examination, so many may have been improperly rejected, said Erin Collins, independent National Taxpayer Advocate, in a blog. Taxpayers who filed an appeal may still be waiting for an answer, but they shouldn't sit idle. There's a strict two-year limit that began when the IRS first rejected the claim to recover your refund that's about to expire.

"If the deadline expires, the consequences are severe: The taxpayer loses the right to file suit in federal court, and the IRS is barred from issuing the refund, even if the claim is otherwise valid," Collins said.

The ERC refund is second tax issue leftover from the COVID-era. Individual taxpayers also are rushing to protect a potential IRS refund by July 10 after a federal court ruled that 2019, 2020, 2021 and 2022 tax filing deadlines were suspended until mid-2023 due to the pandemic. Without taxes due, everyone who was charged penalties or fees during those years may qualify for a refund, lawyers said.

How much money is at stake from ERC?

When launched, eligible businesses could claim 50% of qualified wages paid during the pandemic from March 13, 2020, through Dec. 31, 2020, up to a maximum credit of $5,000 per employee.

In 2021, Congress enhanced the ERC. It increased the maximum credit amount to $7,000 per employee per quarter through Sept. 30, 2021, for most employers. It also began allowing companies that took loans from the Paycheck Protection Program (PPP) to participate. PPP was another COVID-era program meant to help businesses keep paying workers.

Can taxpayers save their refund claim?

The IRS has provided an ERC lifeline for a narrow group of taxpayers.

The IRS said those who have six months or less remaining before the two-year deadline and are waiting for the IRS to consider appeals related only to Letters 105-C or 106-C disallowing an ERC refund claim can use a "streamlined" process to request an extension. If the extension is approved, the IRS will sign and return the agreement to you.

"ERC disallowances unrelated to Letters 105C or 106C, or claims with more than six months remaining on the clock, must go through ordinary IRS channels," noted Peter Haukebo, partner at Frost Law.

That is significant for many other taxpayers who have rejected claims from the IRS, Collins said. In 2025, the IRS issued about 720,000 rejections, of which the ERC notices were only a small fraction, she said. All of those continue to face a two-year deadline.

The IRS plans to send Notice CP320B to taxpayers who are eligible for the streamlined extension process, but Collins said taxpayers "must monitor the statute of limitations based on the date of the claim disallowance notice, as the IRS does not display this deadline on the notice itself or on transcripts."

What's the 'streamlined' process to protect an ERC refund claim?

For eligible taxpayers to protect their right to claim their refund, they must submit Form 907 requesting an extension via the IRS Document Upload Tool by going to IRS.gov/DUTReply and selecting notice ‘CP320B’ from the drop-down menu. Taxpayers will be informed in writing whether the IRS has agreed to the extension. The extension must be agreed by both the taxpayer and the IRS.

"Simply submitting a Form 907 signed by the taxpayer does not protect you unless the IRS takes action on the form as well," Haukebo said. "The agreement is not effective until an authorized IRS official signs on behalf of the Commissioner."

If the deadline passes before the IRS signs — for any reason, including an IRS processing backlog — the taxpayer is out of luck, he said. And if for some reason a refund check arrives later, legally it is considered "erroneous" and can be clawed back.

"It is also worth noting that the IRS announcement is silent on one big issue: the Service is not required to agree to an extension at all, and the agency is not required to grant the full period the taxpayer requests," Haukebo said. "The extension being offered by the IRS is a courtesy, not an entitlement to the taxpayer."

What if deadline's near and IRS hasn't agreed to an extension?

If it gets down to the wire and there's no word from the IRS, tax experts recommend:

• If your case is with Appeals, reach out to that department and find out if an Appeals Officer has been assigned and work with that person to finalize the agreement. "Documentation, follow-up, and persistent communication matter," Haukebo said.
• Contact the Taxpayer Service Advocate (TAS), which Collins heads. "TAS exists precisely to address situations where IRS processing delays threaten taxpayer rights," Haukebo said. "A statute about to expire on a Form 907 the IRS has not yet signed is exactly the kind of issue TAS will take seriously."
• File a lawsuit, as a last resort. "Filing a refund suit before the deadline preserves the taxpayer's right to recover the refund. But this step has real costs," Haukebo said. Not only might you have to pay an attorney and court costs, but authority over the refund moves to the Department of Justice from the IRS and new limitations may arise, he said.

"This new streamlined process for ERC claims is a step in the right direction toward protecting taxpayer rights, but it highlights a broader issue," Collins said. This IRS process "needs to be expanded to all disallowance cases. Until processes are fully aligned for all claim disallowances, taxpayers must remain vigilant. The statutory clock continues to run, and waiting can mean losing the refund entirely."

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.