If you were among the millions of taxpayers who incurred penalties or interest charges on your federal taxes during the COVID-19 pandemic, you may be sitting on an unclaimed financial windfall. A landmark federal court decision, Kwong v. United States, has effectively opened the door for taxpayers to recoup money paid to the IRS for late filing or late payment penalties incurred during the pandemic’s federal disaster period. However, this potential refund comes with a rigid deadline and a complex administrative process that requires immediate attention.
Main Facts: The Kwong Ruling and Your Eligibility
The core of this issue stems from the federal government’s disaster declaration regarding the COVID-19 pandemic. This period, which began on January 20, 2020, and officially concluded on May 11, 2023, triggered specific tax code provisions. Under standard IRS regulations, when the federal government declares a disaster area, taxpayers affected by that disaster are entitled to automatic extensions on filing and payment deadlines.
In Kwong v. United States, the plaintiff, Terry Kwong, successfully argued that the IRS improperly assessed penalties and interest for tax years spanning 2007 through 2016. Kwong contended that he was entitled to an extension under both existing tax law and pandemic-specific relief legislation. The court ultimately ruled in his favor, finding that the tax code’s language was "unambiguous." The court determined that the IRS should have extended the relevant tax deadlines to July 10, 2023—exactly 60 days after the official end of the COVID-19 federal disaster period.
Because the court ruled that these deadlines should have been extended, any penalties or interest collected by the IRS for late filings or payments within that window were, by extension, assessed in error. This ruling potentially applies to a massive swath of the American public, including individuals, small business owners, corporations, estates, and trusts who were penalized for failing to meet tax obligations while the country was under the pandemic disaster umbrella.
A Chronology of the Disaster Period and Legal Action
To understand why this is happening now, it is essential to view the timeline of the COVID-19 disaster declaration:
- January 20, 2020: The official start of the COVID-19 federal disaster period.
- May 11, 2023: The official conclusion of the COVID-19 federal disaster period.
- July 10, 2023: The "deemed" deadline calculated by the court, adding the statutory 60-day relief period to the disaster end date.
- The Litigation Period: Terry Kwong pursued his case through the court system, challenging the IRS’s interpretation of its own authority during the unprecedented three-year-long disaster declaration.
- July 10, 2026: The absolute deadline for taxpayers to file a protective or formal claim for a refund, marking three years from the court-determined tax deadline.
The significance of the three-year window cannot be overstated. According to IRS regulations, taxpayers typically have three years from the date they filed a return or two years from the date they paid a tax to seek a refund. Because the Kwong ruling retroactively shifted the deadline for COVID-era tax payments to July 10, 2023, the statute of limitations for filing for a refund was similarly extended to July 10, 2026.
Supporting Data: Why This Matters to Millions
The scale of this potential refund is staggering. Erin M. Collins, the National Taxpayer Advocate—an independent official within the IRS—has emphasized that tens of millions of taxpayers were assessed penalties or interest during this window. These were not limited to simple late filings; they included complex corporate tax structures, trusts, and estates.
For those wondering if they are eligible, the first step is a audit of one’s own records. The most reliable way to determine if you were penalized is to access your "Federal Income Tax Transcript" via your official IRS online account. This transcript provides a detailed breakdown of all assessed penalties, interest, and payments for specific tax years. If your transcript shows charges for late filing or late payment during the period between 2020 and 2023, you are likely a candidate for a refund claim.
Official Responses and the Outlook for Appeal
While the Kwong decision is a victory for taxpayers, the legal battle is far from over. It is widely anticipated that the Department of Justice, representing the interests of the IRS, will appeal the decision. Such an appeal could drag the case through the court system for several years.
This creates a "limbo" scenario for the average taxpayer. Because the issue is currently subject to ongoing litigation, the IRS is unlikely to issue refunds automatically. This is where the strategy of filing a "protective claim" becomes vital. As explained by the National Taxpayer Advocate, a protective refund claim allows you to formally register your request for a refund even while the final legal outcome is being debated in higher courts. By filing this claim, you preserve your right to receive a refund if the Kwong decision is upheld at the appellate level.
Implications: How to Secure Your Claim
The administrative burden of this process falls squarely on the taxpayer. There is no "one-click" portal for these refunds. To initiate a claim, you must utilize Form 843 (Claim for Refund and Request for Abatement).
The Strategy for Filing:
- Use Form 843: This is the specific document required for requesting a refund of penalties or interest.
- Labeling: Write "Protective Refund Claim Pursuant to Kwong Case" clearly at the top of the form. This signals to the IRS processing center that your claim is tied to the ongoing litigation and should be held until a resolution is reached.
- Specificity: While you do not need to calculate the exact amount you are owed to file a protective claim, you must be specific. Include the tax year(s) you are contesting, your Taxpayer Identification Number (usually your Social Security Number), and a clear explanation of why you are filing (referencing the Kwong ruling).
- Certified Mail: This is the most critical step. Given the IRS’s well-documented struggles with backlogs and staffing, sending your claim via certified mail provides you with proof of filing. If your claim is lost in the mail or buried in a backlog, that receipt is your only legal protection to prove you met the July 10, 2026, deadline.
- Separate Filings: You must file a separate Form 843 for every tax year for which you are seeking a refund. If you paid penalties for 2019, 2020, and 2021, you must submit three separate forms.
Why You Should Act Now
The National Taxpayer Advocate has been clear: "A timely claim is more important than a perfect one." While you may be able to supplement your claim with more details later, a missed deadline is absolute. The July 10, 2026, date is a hard stop. Even if the court system takes years to reach a final decision, filing your claim now ensures you are "in line" for a refund should the government be forced to return these penalties.
Managing Expectations
It is important to maintain a realistic outlook. Even if you file your claim perfectly, you should not expect a check in the mail in the coming months. The IRS is currently dealing with significant operational challenges, including a massive backlog of paper filings and a staffing shortage that has delayed processing times across the board.
When you add the layer of federal litigation to these operational hurdles, it becomes clear that this is a long-term endeavor. Taxpayers should view this as a potential future benefit rather than an immediate source of cash. However, for those who were hit with significant late-payment penalties during the pandemic—which can often amount to thousands of dollars for businesses or estates—the time invested in filling out Form 843 is well worth the potential payout.
The Kwong v. United States case serves as a reminder of the power of administrative law and the importance of holding federal agencies accountable to the letter of the law. As the situation develops, keep a close eye on the National Taxpayer Advocate’s blog, as they provide the most reliable updates for taxpayers navigating this specific refund path. For now, pull your transcripts, gather your documentation, and ensure that your protective claim is in the mail long before the 2026 deadline. Do not let the complexity of the process prevent you from reclaiming money that, according to the court, the government should never have collected in the first place.
