Time-Sensitive Refund Opportunity for COVID-Era IRS Penalties and Interest

A recent federal court decision may create refund opportunities for taxpayers who paid certain IRS penalties or interest connected with the COVID-19 period.

In Kwong v. United States, the U.S. Court of Federal Claims held that COVID-related disaster relief provisions automatically extended certain federal tax deadlines from January 20, 2020 through July 10, 2023. As a result, some IRS penalties and related interest may have been assessed during a period when collection activity should have been postponed.
This court ruling could impact taxpayers who paid:

• Late-filing penalties
• Late-payment penalties
• Estimated tax penalties
• Interest related to those items

This may apply to both individuals and businesses if the underlying filing, payment, or estimated tax due date fell during the COVID postponement period.

Why This Matters

The decision suggests that some penalties and interest charged during the COVID disaster period may not have been legally due. In certain situations, taxpayers may be entitled to refunds.

Potentially affected situations include:

• Returns filed after an original due date that fell within the COVID relief period
• Late tax payments tied to deadlines during that period
• Estimated tax penalties for 2020 or 2021 installments
• IRS interest charged on those items

A Few Things to Keep in Mind

The Kwong decision came from the U.S. Court of Federal Claims and is not yet a final nationwide rule. The government is expected to appeal, and additional guidance or court decisions could change how the issue is ultimately resolved.

In addition, the outcome will depend heavily on each taxpayer’s specific facts — including the type of penalty involved, when it was assessed or paid, and whether the original filing or payment deadline actually fell within the COVID postponement period.

Why Acting Before July 10, 2026 May Be Important

Even though the law in this area is still developing, taxpayers may not want to wait for the courts to reach a final answer before taking action.

For many taxpayers, July 10, 2026 could become an important deadline for preserving potential refund rights tied to COVID-era penalties and interest.

If a refund claim is not filed before the applicable statute of limitations expires, the opportunity to recover those amounts could be lost — even if later court decisions ultimately confirm that the penalties or interest were improperly assessed.

Because of that uncertainty, many taxpayers may want to consider filing a protective refund claim now. A protective claim is essentially a placeholder filing submitted to preserve a taxpayer’s rights while the legal issues continue to work their way through the courts.

What You Should Do

If you or your business paid penalties or interest related to these issues, we encourage you to contact your current tax advisor to discuss whether you may qualify for relief, refund opportunities, or protective refund claims and to understand any applicable deadlines.

If you are seeking a proactive advisor to help you navigate complex tax matters and planning opportunities going forward, our team would be happy to discuss how we may be able to help.

Schedule an appointment to learn how we can support you

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