IRS Form 907: A Lifeline for Taxpayers Awaiting Refunds

Navigating the complexities of the Internal Revenue Service (IRS) can be a daunting task, especially when a taxpayer believes they are owed a refund that has been denied. While the process for challenging a denied claim exists, a critical and often overlooked deadline can permanently bar a taxpayer from receiving their money, even if the IRS later agrees it is owed. This is where IRS Form 907, Agreement to Extend the Time to Bring Suit, becomes an indispensable tool. 

The Two-Year Countdown: The Statute of Limitations on Refund Suits 

When the IRS denies a taxpayer's claim for a refund, it typically sends a formal notice of disallowance, such as a Letter 105C or 106C. According to Internal Revenue Code (IRC)  

§6532(a)(1), the taxpayer has a two-year window from the date that notice is mailed to file a lawsuit for the refund in a U.S. District Court or the U.S. Court of Federal Claims. 

This two-year period is a strict statute of limitations. For many, it seems like ample time to continue administrative discussions with the IRS or the IRS Independent Office of Appeals. However, a dangerous trap lies within this assumption. 

The Hidden Danger: When the IRS' Hands Are Tied 

A critical provision, IRC § 6514(a)(2), creates a significant risk for taxpayers. This section states that any refund paid or credit allowed after the two-year statute of limitations for filing a suit has expired is considered erroneous and void 2. 

The Taxpayer Advocate Service (TAS) has highlighted this as a major pitfall. Even if a taxpayer is actively working with the IRS and has reached an agreement that a refund is due, if the two-year period expires before the payment is processed, the IRS is legally prohibited from issuing the refund 3. The administrative backlogs and processing delays, particularly those exacerbated by the pandemic, have made it increasingly difficult for disputes to be fully resolved and paid within this two-year window. 

"If you are working with the IRS or the IRS Independent Office of Appeals ('Appeals'), do not make the mistake and assume that working toward a resolution equates to the IRS’s ability to pay a refund or allow a credit once the IRC § 6532 statute has expired." - National Taxpayer Advocate Blog

The Solution: IRS Form 907 

The statutory solution to this problem is IRS Form 907, Agreement to Extend the Time to Bring Suit. This form is a formal, written agreement between the taxpayer and the IRS to extend the two-year period for filing a refund lawsuit. The legal basis for this agreement is found in IRC § 6532(a)(2) and further detailed in Treasury Regulation § 301.6532-1(b). 

By executing Form 907, both parties agree to a new deadline, giving the IRS the legal authority to continue working on the case and, crucially, to issue the refund after the original two-year period has passed. 

When Should Taxpayers Use Form 907? 

The IRS may agree to execute a Form 907 to prevent inequities to taxpayers. The Taxpayer Advocate Service has recommended that the IRS consider an extension in several situations, including: 

• The IRS needs more time to review the claim or consider new information. 

• The IRS agrees a refund is owed, but processing delays will prevent payment before the deadline. 

• The taxpayer was harmed by a process failure, such as a lost case file or a failure to forward the case to the correct department. 

• The Taxpayer Advocate Service is assisting with the case but cannot secure the refund before the statute expires. 

• This has become particularly relevant for the large volume of Employee Retention Credit (ERC) claims, where complex reviews and significant backlogs have put many taxpayers at risk of their statute of limitations expiring. 

  
  

Practical Challenges and Final Warnings 

While Form 907 is a powerful tool, taxpayers face practical hurdles in using it: 

1. Finding the Right Person: Only select IRS officials, such as Directors and certain delegated managers, have the authority to sign a Form 907. No one at the Taxpayer Advocate Service has this authority. 

2. Unassigned Cases: If a case is not actively assigned to an agent or Appeals Officer, it can be difficult to know where to send the Form 907 for a signature. 

3. Processing Delays: Mailing a Form 907 to a general IRS address risks it getting caught in the same backlogs the taxpayer is trying to overcome. 

Ultimately, the burden is on the taxpayer to be proactive. If the two-year anniversary of your claim disallowance notice is approaching, you must act. 

If you do not have a refund in hand or a fully executed Form 907 before the deadline, your only remaining option to protect your rights is to file a refund suit in the appropriate court. Failure to do so will likely result in the permanent loss of your potential refund. 

To learn more about how to fix your IRS issues, click the link to watch the free video, The Ultimate Guide to Solving Your IRS Tax Problems: 

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