Taxpayers Face July 10 Deadline to File for Potential COVID-Era IRS Refunds

WASHINGTON — Millions of American taxpayers, including small and mid-sized businesses, have until July 10, 2026, to file a special claim with the Internal Revenue Service to preserve their right to a potential refund of penalties and interest assessed during the COVID-19 pandemic. The National Taxpayer Advocate is sounding the alarm, urging individuals and businesses to act before the fast-approaching deadline passes, which could permanently forfeit their eligibility for what may amount to significant financial relief. The deadline stems from ongoing legal disputes over tax relief provisions enacted during the pandemic. A federal court ruling in Kwong v. United States opened the door for a broader interpretation of disaster relief rules, suggesting that deadlines for filings and payments might have been postponed for the entire 3.5-year COVID-19 federal disaster period, which began in early 2020. The IRS disagrees with this interpretation and is actively challenging the ruling, creating a state of legal uncertainty for taxpayers. This issue is not confined to a small group of taxpayers. According to the National Taxpayer Advocate (NTA), an independent organization within the IRS, tens of millions of taxpayers were assessed penalties or interest for late filings or payments during these years. In a public statement, National Taxpayer Advocate Erin Collins expressed concern that many of those affected are taxpayers with low and moderate incomes, who are often less likely to have professional representation and may be unaware of complex legal developments like the Kwong case. This puts them at a greater risk of missing the opportunity to claim refunds to which they may be entitled. Because the legal matter is still being litigated, the IRS is not automatically issuing refunds or abatements. Instead, taxpayers must proactively file what is known as a “protective claim for refund.” This formal procedure does not trigger an immediate payment but serves as a placeholder, preserving a taxpayer’s right to receive a refund or have penalties reduced if the courts ultimately rule against the IRS’s position. Officials warn that without filing a protective claim by the July 10 deadline, taxpayers will likely lose any chance to recover these funds, even if the final court decisions are in their favor. To file, taxpayers must submit Form 843, “Claim for Refund and Request for Abatement.” The NTA has advised that the form should be clearly marked at the top with a phrase such as “Protective Refund Claim Pursuant to Kwong Case” to ensure it is processed correctly. This step is critical for both refunds of penalties and interest already paid and for the abatement of amounts that have been assessed but not yet collected. The core of the dispute lies in the interpretation of federal law regarding disaster periods. While some regulations suggest that relief from penalties and interest does not apply to delinquencies that existed before the disaster period began, the NTA noted that the Kwong opinion did not address pre-disaster delinquencies. Collins stated that if courts determine the statutory language suspended all timing penalties and interest accruals during the period, a wide range of taxpayers could be eligible for relief. For small and mid-sized businesses, the financial stakes could be substantial. Many companies faced unprecedented operational and financial challenges during the pandemic, leading to late tax filings or payments for income, payroll, or other federal taxes. The accumulation of penalties and interest over a multi-year period can represent a significant financial burden. A potential refund or abatement of these charges could provide a crucial injection of capital, aiding in ongoing recovery and growth efforts. Collins has highlighted the issue as a matter of fundamental fairness within the tax system. “When relief exists but is difficult to access, taxpayers — especially those without representation — are at risk of losing benefits,” she wrote. This could lead to a situation where similarly situated taxpayers receive disparate treatment, with informed filers receiving refunds while millions of others who were unaware of the deadline receive nothing. Such an outcome, Collins argued, undermines taxpayer rights, including the right to pay no more than the correct amount of tax. The complexity surrounding the Kwong case and the protective claim process highlights a common challenge for business owners attempting to navigate the tax code without expert guidance. This is not a simple DIY task; the legal ambiguity and the specific procedural requirements for filing Form 843 for this purpose mean professional assistance is critical to ensure the claim is filed correctly and on time. A poorly prepared or incomplete protective claim can be just as ineffective as no claim at all, potentially invalidating a business's right to a future refund. In our experience with tax preparation and compliance, overlooking a detail or misinterpreting the basis for the claim can lead to its rejection. We see this as a critical, time-sensitive opportunity for businesses to potentially recover significant funds, but the window is closing. Navigating these nuanced IRS procedures is precisely where expert help is invaluable. Business owners who believe they were assessed penalties during this period should have their records reviewed, and to ensure their rights are preserved correctly, they can contact C&S Finance Group LLC at csfinancegroup.com for assistance. Moving forward, the final resolution for taxpayers will depend on the outcome of the ongoing litigation between the IRS and proponents of the Kwong ruling. The decisions handed down by the courts will ultimately determine whether the protective claims filed by the July 10 deadline translate into actual refunds and abatements. Until a final legal determination is made, filing a protective claim remains the only available action for taxpayers and businesses seeking to secure their potential relief.