Letter 105C: Why the Refund Clock Keeps Ticking

Elena Carter

Imagine a client walks into your office on August 7, 2026. His name is Marcus Vance, and he is holding a copy of Letter 105C issued by the IRS on March 10, 2025. Back on October 12, 2024, Marcus filed an amended Form 1040 X for tax year 2022, claiming a twenty four thousand five hundred dollar casualty loss refund. The IRS rejected it outright, issuing that Letter 105C, which is a formal Full Claim Disallowance. Marcus tells you, look, do not worry, I filed an administrative appeal, and the IRS Appeals officer verbally assured me last month that everything is moving along fine. But you pull his IRS Account Transcript, and there it is, Transaction Code 971, confirming the claim disallowance was postmarked on March 10, 2025. You realize Marcus only has seven months left on a statutory clock that is ticking down fast.

Elena Carter

Here is the devastating statutory trap that catches so many taxpayers and practitioners off guard. Under Internal Revenue Code Section 6532 subsection a subsection 1, statutory notices are required by Sec. 6532(a) because they commence a two year statute for filing a refund suit. That means Marcus has exactly two years from March 10, 2025, to file a judicial complaint in United States District Court or the United States Court of Federal Claims. But Marcus thinks, hey, I am currently in IRS Appeals! Surely negotiating with the IRS pauses the clock, right? Absolutely not.

Elena Carter

Administrative negotiations do not toll the two year clock. And here is where it gets truly brutal. Under Internal Revenue Code Section 6514 subsection a subsection 2, if that two year period expires without a federal court filing or an executed extension, the statute prohibits the IRS from paying the refund or allowing the credit. Read that again in your mind. Even if IRS Appeals agrees with Marcus on day seven hundred thirty one that his casualty loss was completely valid on the merits, the law strictly prohibits the IRS from paying the refund or allowing the credit. The IRS literally cannot pay him one single cent.

Elena Carter

And do not fall for another common procedural confusion. Some practitioners think, well, we will just file a petition in the United States Tax Court. The Tax Court has zero jurisdiction over a pure refund claim disallowance under Letter 105C. Do not confuse a Letter 105C with a Letter 3219 Statutory Notice of Deficiency. They are entirely different animals. Furthermore, while Internal Revenue Manual section 8.7.7 gives guidance to Appeals officers about handling these cases, the Internal Revenue Manual is merely administrative guidance. It cannot override statutory law or grant taxpayer rights that the code explicitly denies.

Elena Carter

So what are the unverified facts in Marcus's file that you must immediately investigate? You need to verify whether Appeals actually received complete substantiation for that casualty loss, and whether his prior representative ever submitted a formal request to extend the statute. Because if that two year deadline hits March 10, 2027, without legal action or a binding extension, Marcus's twenty four thousand five hundred dollars is gone forever.

Elena Carter

So how do you save a client like Marcus from walking off this cliff? You have two clear options, but only one actually protects him. Option A is doing what Marcus was already doing, relying solely on ongoing Appeals negotiations and hoping they wrap up before March 2027. That option leaves him exposed to an absolute statutory bar under Section 6514. Option B is active procedural preservation, and that requires immediate, decisive action.

Elena Carter

To execute Option B, you must use Form 907, titled Agreement to Extend the Time to Bring Suit. Form 907 freezes the clock and gives Appeals the necessary time to evaluate the casualty loss documents without sacrificing Marcus's right to litigate. But here is the critical procedural catch that practitioners miss: Form 907 must be fully executed, meaning signed by both the taxpayer AND countersigned by an authorized IRS Appeals manager, before that two year clock runs out. Simply mailing Form 907 to the IRS on day seven hundred twenty nine does not save you if the IRS manager signs it after the deadline.

Elena Carter

Now, let us address representation boundaries under Treasury Department Circular 230. As an Enrolled Agent, Certified Public Accountant, or tax attorney, you have full authority under Circular 230 to represent taxpayers before IRS Appeals. But if Appeals refuses to execute Form 907, or if time runs out, your remedy moves into federal judicial territory. Filing a suit in United States District Court or the Court of Federal Claims requires timely coordination with an attorney admitted to practice in those specific federal courts.

Elena Carter

Let us distill this into a core representation principle that you should memorize for your practice: Administrative negotiations never toll a statutory refund suit deadline; always secure an IRS countersigned Form 907 before the two year clock runs out. Keep that mantra at the front of your mind whenever a disallowance notice enters your office.

Elena Carter

Here is your compact case checklist when handling a Letter 105C. Step one, pull the Account Transcript immediately and verify the precise certified mailing date of Letter 105C linked to Transaction Code 971. Step two, calculate the exact Section 6532 statutory expiration date. Step three, prepare and submit Form 907 to IRS Appeals right away, monitoring it aggressively until you receive the fully countersigned copy. Step four, if Appeals delays or refuses execution as the deadline nears, immediately partner with federal tax litigation counsel to draft and file a complaint in federal court. Protect that clock, protect your client, and I will catch you in the next scenario.