Many taxpayers may be entitled to refunds or abatements of penalties and interest that the IRS assessed during the COVID-19 federal disaster period. However, this relief will not happen automatically. To potentially benefit from this, most taxpayers must file a “protective claim” for refund by July 10, 2026.
If you were assessed IRS penalties and interest between January of 2020 and July 2023, keep reading!
Details of the Kwong Decision and How It Could Affect You
This issue arises from recent court decisions, most notably Kwong v. United States.
For COVID-19, a federal disaster declaration was in effect from January 20, 2020, through May 11, 2023. Based on the court’s reasoning in Kwong, filing and payment deadlines were postponed during that entire period, plus 60 days (so 1/20/20 through 7/10/23).
As a result, tax returns and payments due anytime within that window were not late until after July 10, 2023.
By the court’s logic, the IRS should not have assessed penalties for late filing or payment during that 3.5-year period, nor charged interest on those amounts.
The IRS has now appealed the decision, but it may take years until the issue is resolved by the courts.
What This Means for You
Under the reasoning of the Kwong decision, you may be entitled to a refund or abatement of certain amounts assessed during the COVID period, including:
- Penalties assessed for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments;
- Interest that began accruing earlier than it should have, or not at all; and
- Overpayment interest for the 2020–2023 disaster period.
The Kwong decision could even be interpreted to mean that where the underlying liability arose before the disaster period began, you may not have had to pay interest or penalties during that period.
Impacted taxpayers could include individuals, small businesses, large corporations, estates, and trusts. The issue reaches taxpayers with obligations related to income, employment, estate, gift, and excise taxes.
Bottom line: You may be entitled to a refund or reduction of assessed penalties and interest. But most taxpayers must act on or before July 10, 2026, to request their potential refunds. This protects your right to that refund if the final Kwong decision is in your favor once resolved by the courts.
Not sure if this applies to you?
Suggested steps:
- Log into your account as irs.gov and view your Account Transcripts for 2019-2022 to see if you were assessed penalties and interest that you either paid or are still pending payment.
- Contact a tax professional to help you assess the potential impact to you.
The Karas Seipel Tax Team is ready to help prepare the required paperwork to protect your potential refund. Kindly let us know your request no later than 6/30/26. Once complete, the paperwork will require you to print it, sign and mail it certified mail no later than July 10th.
If you would like to consult with us before proceeding, you may schedule an appointment via https://calendly.com/karasseipeltax . or email us at team@karasseipeltax.com. All consultation and review time, but email or appointment, will be subject to the standard hourly rate.
More information available at https://www.taxpayeradvocate.irs.gov/