COVID-Era IRS Penalty & Interest Refunds: What Taxpayers Should Know Before July 10, 2026

Taxpayers who paid certain penalties or interest assessed by the IRS during the COVID-19 federal disaster period may have a refund opportunity worth reviewing.

The potential refund issue stems from a recent federal court ruling in Kwong v. United States, where the U.S. Court of Federal Claims addressed how disaster-related deadline postponement rules applied during the COVID-19 pandemic. The court’s interpretation could affect whether the IRS properly assessed certain penalties and interest tied to tax filing and payment deadlines that fell between January 20, 2020, and July 10, 2023.

What You Need to Know

The issue may affect taxpayers with federal tax deadlines that fell during the COVID-19 disaster period, including certain deadlines related to 2019, 2020, 2021, and 2022 tax returns.

In general, the refund opportunity may be relevant for taxpayers who:

• Filed or paid after the original due date, but on or before July 10, 2023, and
•  Were assessed late-filing penalties, late-payment penalties, estimated tax penalties, or certain interest during the COVID-19 disaster period, and
•  Now want to preserve a potential refund claim.

Is the Kwong Decision Final?

No. The law remains unsettled, and the government is expected to continue challenging this position. Because the issue may take years to resolve through additional litigation or IRS guidance, taxpayers who may be affected should not assume refunds will be automatic, if a favorable decision is reached.

Therefore, we are encouraging affected taxpayers to consider filing a protective refund claim before the applicable statute of limitations expires.

Why July 10, 2026, Matters

The statute of limitations for refund claims is generally three years from the date a return was filed or two years from the date the tax was paid, whichever is later. For returns treated as filed by the postponed July 10, 2023, deadline, the three-year window will generally expire on July 10, 2026.

Taxpayers who believe they may have paid penalties or interest affected by the Kwong decision should consult us as soon as possible. A protective claim may help keep the tax year open while the issue continues to be litigated.

Taxpayers will need to file Form 843, Claim for Refund and Request for Abatement, with the IRS. This form must currently be paper filed, so taxpayers should allow enough time for obtaining documentation, preparation and mailing before the July 10, 2026, deadline.

What Should You Do Now?

If you paid IRS penalties or interest connected to COVID-era filing or payment deadlines, you should consider taking the following steps:

• Review IRS account transcripts for 2019, 2020, 2021, and 2022
• Identify any penalties or interest assessed during the COVID-19 disaster period
• Determine whether payments were made on or before July 10, 2023
• Contact us about whether a protective refund claim may be appropriate
• File any required claim before the applicable deadline

The IRS is expected to challenge the court ruling; therefore, refunds are not guaranteed. However, for taxpayers who paid significant penalties or interest during the pandemic period, the potential benefit may be worth reviewing before the July 10, 2026, deadline.