A recent federal court decision could create significant refund opportunities for millions of taxpayers who were assessed IRS penalties and interest during the COVID-19 pandemic. While the legal issue is still being litigated, taxpayers may need to act before July 10, 2026, to preserve their right to seek a refund.
If you paid IRS penalties or interest related to late filing or late payment during the pandemic years, this development deserves your attention.
The Court Case Behind the Potential Refunds
In Kwong v. United States, a federal court concluded that because the federal COVID-19 disaster declaration remained in effect from January 2020 through May 11, 2023, certain tax deadlines may have been suspended until July 10, 2023. If that interpretation ultimately prevails, many taxpayers who were treated as late by the IRS may have actually filed returns or made payments within the legally extended timeframe.
As a result, penalties and interest assessed during that period could potentially be refundable.
What Types of Refunds Could Be Available?
Depending on the facts of a taxpayer's case, potential refund claims may involve:
· Failure-to-file penalties,
· Failure-to-pay penalties,
· Estimated tax penalties,
· Interest charges associated with allegedly late filings or payments, and
· Related penalty and interest assessments connected to COVID-era filing deadlines.
For some taxpayers, the potential refunds could be substantial.
Is the IRS Currently Issuing These Refunds?
Not at this time.
The IRS disagrees with the court's interpretation and additional litigation is expected. Appeals could take years to resolve, and there is no guarantee that the ruling will ultimately be upheld.
However, waiting for the courts to reach a final decision could create another problem: taxpayers may lose the ability to file a claim due to refund statutes of limitation.
That is why tax professionals and taxpayer advocates are encouraging potentially affected taxpayers to evaluate their options now.
Why July 10, 2026, Matters
Tax law imposes strict deadlines for filing refund claims. In many cases, taxpayers who fail to file a timely claim lose their right to recover money—even if they would otherwise be entitled to a refund.
However, the underlying legal issue may not be fully resolved before the refund claim deadline expires.
To protect their rights, taxpayers may need to file a refund claim or a "protective claim" before July 10, 2026.
What Is a Protective Claim?
A protective claim allows a taxpayer to preserve their refund rights while the underlying legal issue continues through the courts.
Protective claims are commonly used when the outcome of a court case, pending legislation, or another legal development could affect a taxpayer's entitlement to a refund. Rather than waiting for the issue to be resolved—and potentially missing an important filing deadline—a taxpayer files a protective claim to keep the refund claim alive.
In the context of the COVID-era tax deadline litigation, a protective claim may allow taxpayers to preserve their right to recover penalties and interest if the courts ultimately uphold the taxpayer-friendly interpretation adopted in Kwong v. United States.
How Is a Protective Claim Filed?
Taxpayers can file a protective claim using IRS Form 843, Claim for Refund and Request for Abatement, and should write “Protective Refund Claim Pursuant to Kwong Case” or something similar across the top.
Fill in as many details as possible. The claim should generally:
· Identify the tax periods involved.
· Specify the penalties or interest for which a refund is sought.
· Explain that the claim is based on the legal issues currently being litigated regarding COVID-19 disaster relief and filing deadline extensions.
· State that the claim is intended to preserve the taxpayer's refund rights pending final resolution of the litigation.
Why Timing Matters
A protective claim does not guarantee that a refund will be issued. However, it may protect a taxpayer from losing refund rights due to the expiration of the statute of limitations.
For taxpayers who may be affected by the COVID-era deadline litigation, filing a timely protective claim could be the difference between preserving a potential refund and permanently losing the ability to pursue one.
Who Should Consider Reviewing Their IRS Account?
You may want to evaluate your eligibility if:
· You filed federal tax returns after their original due dates during the COVID period.
· You paid IRS failure-to-file or failure-to-pay penalties.
· The IRS assessed interest related to late filing or late payment.
· You entered into an installment agreement that included penalty and interest assessments.
· You operate a business that incurred payroll tax or income tax penalties during the pandemic years.
Even taxpayers who have already paid off their tax balances may still have refund opportunities if penalties and interest were improperly assessed.
How a Tax Resolution Attorney Can Help
Determining whether a taxpayer has a viable refund claim requires a careful review of IRS transcripts, assessment dates, filing history, and applicable statutes of limitation.
A tax resolution attorney can help:
· Analyze IRS account transcripts,
· Identify potentially refundable penalties and interest,
· Determine applicable filing deadlines,
· Prepare refund claims or protective claims,
· Represent taxpayers in disputes with the IRS, and
· Monitor ongoing developments in litigation.
The Bottom Line
The recent court ruling does not guarantee refunds. However, it creates a potentially significant opportunity for taxpayers who paid IRS penalties and interest during the COVID-19 disaster period.
Because the legal issue may remain unresolved beyond the applicable refund deadlines, taxpayers should not assume they can wait until the litigation concludes before taking action.
If you believe you may have paid IRS penalties or interest during the pandemic years, now is the time to review your situation and determine whether a refund claim should be filed before the July 10, 2026, deadline.
Need Help Determining Whether You Qualify?
Our tax resolution attorneys can review your IRS account history, identify potential refund opportunities, and help you preserve your rights before critical filing deadlines expire. Contact Bryson Law Firm today to schedule a free consultation today.
