Businesses Face July 10 Deadline to Reclaim COVID-Era Tax Penalties

A fast-approaching July 10 deadline is creating a narrow window for millions of U.S. businesses and individuals to claim refunds for penalties and interest that the Internal Revenue Service may have improperly assessed during the COVID-19 pandemic. Following a key federal court ruling that challenged the agency's stance on deadline extensions, taxpayers who were charged for late filings or payments between early 2020 and mid-2023 must now act quickly to file for reimbursement before the opportunity is permanently lost. The issue stems from the IRS’s interpretation of tax law regarding federally declared disasters. When the pandemic was declared a national disaster on January 20, 2020, certain tax deadlines were automatically postponed under the Internal Revenue Code. However, the IRS took the position that because the declaration was open-ended, these postponements did not apply, and it continued to assess penalties for late filings and payments. A recent court decision has upended that interpretation, creating a legal basis for taxpayers to seek abatement of those charges. In our experience, this is not a simple automated refund; it requires a proactive and detailed review of a company's tax history during what was an exceptionally chaotic period for business operations. We've seen that many small and mid-sized companies, particularly those that filed amended returns to claim the Employee Retention Credit (ERC), are prime candidates for having been assessed these penalties, often without realizing they had a basis for appeal. The potential recovery can be substantial, but the documentation and filing requirements for Form 843 are precise and unforgiving. This situation highlights the critical importance of diligent tax preparation and compliance. Missing this firm deadline means leaving significant money on the table permanently. Businesses uncertain of their eligibility should have their records from 2019 through 2022 reviewed by a professional; C&S Finance Group LLC provides exactly this type of analysis at csfinancegroup.com. The legal foundation for these refund claims is rooted in Internal Revenue Code Section 7508A, which grants the Treasury Secretary authority to postpone tax deadlines for taxpayers affected by a federally declared disaster. The IRS argued that this provision required a specific end date for a disaster declaration to trigger the automatic extensions. Since President Trump’s declaration was open-ended, the agency continued to enforce deadlines. However, a federal court ruling in the case of Kwong v. Commissioner sided with the taxpayer, determining that the open-ended disaster declaration did, in fact, trigger the deadline postponements. This decision provides the legal leverage for refund claims. The National Taxpayer Advocate, an independent organization within the IRS, has publicly highlighted the issue. In a recent blog post, Advocate Erin Collins urged taxpayers and professionals to act before the opportunity closes, noting that “tens of millions of taxpayers” may be eligible for refunds or abatements. The post explained that because a disaster of this length is so infrequent, “most taxpayers, even most tax professionals, did not foresee that filing deadlines and payments deadlines would be postponed for this long.” Affected taxpayers include any business or individual assessed penalties for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments for the period spanning from January 20, 2020, to July 10, 2023. According to tax advisory firm Forvis Mazars, businesses that filed amended returns in connection with ERC claims are particularly likely to have had penalties or interest assessed in the process. The financial stakes are significant. Alyssa Whatley, an attorney at Frost Law, told InvestmentNews she is handling claims ranging from $600,000 for an individual to $2 million for a business. Major corporations, including Meta Platforms and Western Digital, have also cited the court ruling in their own disputes with the IRS, indicating that companies of all sizes are pursuing these potential refunds. To claim a refund, taxpayers must proactively file Form 843, Claim for Refund and Request for Abatement. The IRS does not currently offer an electronic filing option for this form, meaning it must be completed and sent by mail. The deadline for most taxpayers is July 10, 2026. This date is calculated as three years from the extended deadline of July 10, 2023, which itself is the endpoint of the disaster period plus a 60-day statutory extension. This cutoff generally covers claims related to the 2019, 2020, 2021, and 2022 tax years. The situation is complicated by legal uncertainty, as the Justice Department is expected to appeal the Kwong decision. This potential for a lengthy legal battle has led many tax advisors to recommend filing a “protective refund claim.” Such a filing preserves a taxpayer’s right to a refund while the legal landscape continues to develop, even if the statute of limitations would otherwise expire. Without such a claim filed by the July 10 deadline, a taxpayer’s right to a refund could be extinguished regardless of the appeal's outcome. Looking ahead, tax professionals and business owners will be closely watching for any further action from the IRS or Congress to potentially streamline the refund process before the July deadline. The outcome of the expected Justice Department appeal of the Kwong decision will also be critical in shaping the final legal precedent for these and future disaster-related tax deadline extensions.