Taxpayers who paid certain penalties or interest assessed by the IRS during the COVID-19 federal disaster period may have a refund opportunity worth reviewing.

The potential refund issue stems from a November 2025 ruling in Kwong v. United States, where the U.S. Court of Federal Claims addressed how disaster-related deadline postponement rules applied during the COVID-19 pandemic. The court’s interpretation could affect whether the IRS properly assessed certain penalties and interest tied to tax filing and payment deadlines that fell between January 20, 2020, and July 10, 2023.

How Did This Issue Arise?

In late 2019, Congress enacted changes to Internal Revenue Code Section 7508A, which provided an automatic 60-day postponement for certain federal tax filing and payment deadlines following a federally declared disaster.

On January 20, 2020, the COVID-19 pandemic was declared a federal disaster. Because the original declaration did not include a formal end date, taxpayers have argued that certain federal tax deadlines were automatically postponed for the duration of the disaster period, plus an additional 60 days.

President Biden later ended the COVID-19 national emergency effective May 11, 2023. Under the reasoning in Kwong, that end date, plus the additional 60-day period, created a postponed deadline of July 10, 2023. In 2021, Congress amended the law to prevent this type of open-ended extension for future disasters, but that change applies prospectively and does not resolve the question for the COVID-19 disaster period.

As a result, some taxpayers and practitioners are arguing that the IRS should not have assessed certain interest or penalties on underpaid, late-paid, or late-filed taxes during that period.

Which Tax Years Could Be Affected?

The issue may affect taxpayers with federal tax deadlines that fell during the COVID-19 disaster period, including certain deadlines related to 2019, 2020, 2021, and 2022 tax returns.

In general, the refund opportunity may be relevant for taxpayers who:

  • Filed or paid after the original due date, but before July 10, 2023
  • Were assessed late-filing penalties, late-payment penalties, estimated tax penalties, or certain interest during the COVID-19 disaster period
  • Paid those penalties or interest and may now want to preserve a potential refund claim

Not every taxpayer will qualify, and the specific facts matter. Taxpayers should review IRS transcripts and payment records with their tax advisor to determine whether a protective claim may be appropriate.

Is the Kwong Decision Final?

No. The law remains unsettled, and the government is expected to continue challenging this position. Because the issue may take years to resolve through additional litigation or IRS guidance, taxpayers who may be affected should not assume refunds will be automatic.

However, waiting too long could cause taxpayers to lose the ability to file a claim. That is why many tax advisors are encouraging affected taxpayers to consider filing a protective refund claim before the applicable statute of limitations expires.

Why July 10, 2026, Matters

The statute of limitations for refund claims is generally three years from the date a return was filed or two years from the date the tax was paid, whichever is later. For returns treated as filed by the postponed July 10, 2023, deadline, the three-year window may expire on July 10, 2026.

Taxpayers who believe they may have paid penalties or interest affected by the Kwong decision should consult their tax advisor as soon as possible. A protective claim may help keep the tax year open while the issue continues to be litigated.

In many cases, taxpayers may need to file Form 843, Claim for Refund and Request for Abatement, with the IRS. This form is generally paper filed, so taxpayers should allow enough time for preparation, mailing, and documentation before the July 10, 2026, deadline.

What Should Taxpayers Do Now?

Taxpayers who paid IRS penalties or interest connected to COVID-era filing or payment deadlines should consider taking the following steps:

  • Review IRS account transcripts for 2019, 2020, 2021, and 2022
  • Identify any penalties or interest assessed during the COVID-19 disaster period
  • Determine whether payments were made before July 10, 2023
  • Consult a tax advisor about whether a protective refund claim may be appropriate
  • File any required claim before the applicable deadline

The opportunity is still developing, and refunds are not guaranteed. However, for taxpayers who paid significant penalties or interest during the pandemic period, the potential benefit may be worth reviewing before the July 10, 2026, deadline.

If you paid IRS penalties or interest related to COVID-era filing or payment deadlines, ML&R can help you evaluate whether a protective refund claim may be appropriate.