Taxpayers Face July 10 Deadline to Claim Potential COVID-Era Penalty Refunds After Court Ruling

A federal court ruling has opened a pathway for millions of U.S. businesses and individuals to potentially reclaim penalties and interest assessed by the Internal Revenue Service during the COVID-19 pandemic, but they must act before a rapidly approaching July 10, 2026, deadline. The case, Kwong v. United States, decided last November, suggests that the IRS may have improperly assessed certain charges during the federally declared COVID-19 disaster period. While the IRS has not publicized this development, the independent National Taxpayer Advocate (NTA) is urging taxpayers to file protective claims to preserve their rights to a potential refund or abatement should the ruling be upheld. The core of the issue dates back to the nearly three-and-a-half-year period designated as a federal disaster, which ran from January 20, 2020, to July 10, 2023. According to the court's reasoning in the Kwong case, the IRS should have paused the assessment of specific penalties and related interest during this entire timeframe. The Taxpayer Advocate Service estimates that tens of millions of taxpayers—including individuals, small businesses, large corporations, estates, and trusts—could be affected. The potential refunds and abatements cover a broad range of common penalties related to income, employment, estate, gift, and excise taxes. These include penalties for failure to file on time, failure to pay on time, and failure to make required estimated tax payments. Any interest that accrued on these penalties would also be subject to refund. However, these refunds are not automatic. The IRS is not expected to issue checks or notify taxpayers who may be eligible. The agency disagrees with the court's decision, and the NTA has stated it anticipates the Department of Justice will appeal the ruling. Consequently, any potential payments will likely be delayed until all legal challenges are resolved. The uncertainty of the outcome makes filing a protective claim before the deadline a critical step for any taxpayer who may have been assessed these charges. To determine eligibility, taxpayers must review their records for penalties and interest assessed between January 20, 2020, and July 10, 2023. The most reliable method is to obtain an official IRS tax account transcript. These documents provide a detailed history of a taxpayer’s account, including assessments, payments, filing dates, penalties, and interest charges. Business owners and individuals can access their transcripts through their Individual Online Account on the IRS website or request a copy by mail, which typically takes five to ten calendar days to arrive. Once a potentially improper penalty has been identified on the transcript, the taxpayer must file Form 843, "Claim for Refund and Request for Abatement." This form allows taxpayers to request a refund of charges already paid or an abatement of amounts the IRS claims are still owed. The NTA has provided specific guidance for filling out the form in this context. It recommends writing a phrase such as "Protective Refund Claim Pursuant to Kwong Case" across the top of the form. Filers should also reference the legal basis for their claim, citing Kwong v. United States and Internal Revenue Code § 7508A(d) as applied to the COVID-19 disaster period. Currently, Form 843 must be submitted on paper. The NTA has criticized this requirement as an outdated process that is slower and more difficult for taxpayers to track. To ensure proof of timely filing before the July 10 deadline, taxpayers are strongly encouraged to send the completed form to the IRS via certified mail with a return receipt requested. In a series of blog posts, the National Taxpayer Advocate has emphasized the importance of this issue, particularly because the IRS has remained silent. "Even if the IRS disagrees with the Kwong decision, I believe it has an obligation to inform taxpayers about their rights, so taxpayers don’t miss the claims deadline if the ultimate resolution of this issue supports their right to the refund or abatement of interest and penalties," the NTA stated. In our experience, many business owners who were assessed penalties during the pandemic simply paid them to resolve the matter and move on, without realizing the charges might have been contestable. The complexity of the Kwong case and the requirement to file a specific paper form creates a significant hurdle. Reviewing years of IRS transcripts to identify specific penalty codes and interest calculations is a time-consuming task that pulls focus from core business operations. This is precisely the kind of complex situation where professional guidance is not just helpful but essential to securing a potential financial recovery. Our firm's expertise in tax preparation and compliance allows us to efficiently analyze client records, determine eligibility, and prepare the necessary protective claims correctly and on time. For business owners who suspect they may have been affected, it is wise to seek assistance; contact C&S Finance Group LLC at csfinancegroup.com to ensure your claim is handled properly before the deadline. Looking ahead, all eyes will be on the Department of Justice to see if it formally appeals the Kwong decision. The outcome of that legal process will ultimately determine whether these protective claims translate into billions of dollars in refunds for American taxpayers. Until then, the primary focus for businesses and their advisors remains on preserving their rights by filing a claim before the July 10, 2026, cutoff.