Quick Facts
Who may qualify?
- Individuals, businesses, trusts, estates, partnerships, and S corporations that incurred IRS penalties or interest during 2020-2023.
- Taxpayers with late-filed returns, late payments, estimated tax penalties, information return penalties, or certain international reporting penalties.
What may be refundable?
- Failure-to-file penalties
- Failure-to-pay penalties
- Estimated tax penalties
- Certain information return penalties
- Certain underpayment interest charges
Important deadline
- Protective refund claims generally must be filed by July 10, 2026.
A recent federal court decision, Kwong v. United States, has created a potential opportunity for taxpayers to recover certain IRS penalties and interest assessed during the COVID-19 disaster period.
The court concluded that Internal Revenue Code Section 7508A automatically postponed certain tax-related deadlines during the federally declared COVID disaster period. Under the court’s interpretation, affected deadlines may have been suspended from January 20, 2020 through July 10, 2023.
If that interpretation is ultimately upheld, some penalties and interest assessed during that period may have been improper.
Potentially affected penalties include:
- Failure-to-file penalties
- Failure-to-pay penalties
- Failure-to-deposit penalties
- Penalties for underpayment of estimated taxes
- Partnership and S corporation late-filing penalties
- Information return penalties
- Certain international reporting penalties
Certain underpayment interest charges assessed during the same period may also be eligible for refund or abatement.
Why Action May Be Needed Now
The government appealed the Kwong decision in May 2026, and the final outcome remains uncertain. The case could ultimately result in no refunds.
However, taxpayers may preserve their rights by filing a protective refund claim. A protective claim allows taxpayers to meet the filing deadline while the litigation remains unresolved.
For many taxpayers, the deadline to file a protective claim is July 10, 2026. Taxpayers who wait until the appeal is resolved may lose the ability to pursue a refund if the statute of limitations expires.
Relief Is Not Automatic
Unlike some COVID-era penalty relief programs previously offered by the IRS, any relief resulting from the Kwong litigation is not expected to be automatic. Taxpayers generally must file a claim to preserve their rights.
What Should You Do?
If you incurred significant IRS penalties or interest between 2020 and 2023, now is the time to evaluate whether a protective refund claim makes sense.
While no refund is guaranteed, filing a timely protective claim may preserve a valuable opportunity should the courts ultimately uphold the taxpayer-favorable interpretation in Kwong.
We recommend contacting our office as soon as possible to review your situation and determine whether a protective refund claim should be filed before the July 10, 2026, deadline.
This article is for informational purposes only and should not be construed as legal or tax advice. Eligibility for any refund depends on individual facts and circumstances and the ultimate outcome of ongoing litigation.