Recent developments in a federal tax case may allow eligible taxpayers who paid IRS penalties and interest during the COVID-19 pandemic to seek a refund.
In Kwong v. United States, the U.S. Court of Federal Claims addressed pandemic-era disaster relief provisions and their impact on certain federal tax deadlines. Under the court’s interpretation, affected tax filing and payment deadlines during the COVID-19 emergency period may have been automatically postponed until July 10, 2023.
As a result, some taxpayers may have been assessed late-filing penalties, late-payment penalties, or related interest that could potentially be eligible for refund or abatement.
What This Means for Taxpayers
This issue may apply to individuals, businesses, trusts, estates, and nonprofit organizations that were assessed and paid certain IRS penalties or interest for tax deadlines falling during the COVID-19 disaster period.
Potentially affected amounts may include:
- Late-filing penalties and related interest
- Late-payment penalties and related interest
- Interest charged for late payment of taxes
- Other timing-related penalties assessed during the affected period
This does not mean every taxpayer will qualify for relief. Eligibility depends on the specific tax year, filing or payment history, type of penalty assessed, and whether the amounts were actually paid.
Why Timing Matters
Although the Kwong decision is an important development, the case is not final. The IRS and Department of Justice have appealed the ruling, and it will take additional time before the courts reach a final outcome.
However, taxpayers generally cannot wait for the appeal process to conclude before taking action. Standard refund claim deadlines may continue to apply, and many taxpayers may need to file a protective claim by July 10, 2026, to preserve their right to a potential refund.
A protective claim does not guarantee that a refund will be issued. Instead, it helps preserve a taxpayer’s eligibility while the legal issue remains unresolved.
What You Should Do Now
Taxpayers who believe they may have paid IRS penalties or interest during the affected period should begin reviewing their records. This may include:
- Tax returns filed for the affected years
- IRS account transcripts
- Penalty notices
- Payment records
- Prior IRS correspondence
If the records show that penalties or interest were assessed and paid during the relevant period, filing a protective claim may be appropriate.
How We Can Help
Our team is monitoring developments in the Kwong case and related IRS guidance. We can assist with reviewing your tax records, determining whether you may have a potential claim, and preparing protective refund claims where appropriate.
Because the potential deadline to preserve refund rights is July 10, 2026, taxpayers should not wait to begin reviewing their records.
If you have questions about whether this issue may apply to you or your business, contact your ShindelRock team for assistance.
