New Court Ruling Could Mean Refunds for COVID-Era Tax Penalties

If you found yourself writing a check to the IRS for penalties and interest during the chaos of the COVID-19 pandemic, don't close the book on those tax years just yet. A recent decision from the U.S. Court of Federal Claims, Kwong vs. United States, challenges how the IRS handled deadlines during the national emergency.

This ruling suggests that the IRS may have incorrectly assessed penalties for late filing or payment between early 2020 and mid-2023. For taxpayers, this opens a specific window of opportunity to potentially recover those funds.

Understanding the Kwong Decision

At the heart of this case is a disagreement over statutory interpretation. The court ruled that the 2019 version of Internal Revenue Code Section 7508A(d) created a mandatory, automatic extension of tax deadlines whenever a federal disaster is declared.

While the IRS argued that they had the authority to limit these extensions to one year, the court disagreed. The judge determined that the extension should have spanned the entire duration of the COVID-19 emergency declaration—specifically from January 20, 2020, to July 10, 2023.

Old coins on paper representing tax refunds

What This Means for Your Wallet

If the ruling holds, the legal deadline for paying taxes for affected periods was effectively pushed to July 10, 2023. This implies that any "failure-to-file" or "failure-to-pay" penalties triggered before that date may have been legally invalid.

Steps to Take Now

Because this legal battle is complex and likely to face an appeal from the government, taking action now is about preserving your rights.

  • Check Your History: You need to know exactly what you paid. Look for penalties or interest assessed on deadlines falling between Jan 20, 2020, and July 10, 2023. You can access your data for free using the Get Transcript tool on IRS.gov. You can also file Form 4506-T by mail or call 800-908-9946, though online is significantly faster.
  • File a Protective Claim: This is the most critical step. Since the IRS will likely appeal the Kwong decision, you should file a "protective" Claim for Refund and Request for Abatement (Form 843). This acts as a placeholder. It stops the statute of limitations clock from running out while the courts finalize the legal precedent.
  • Request Abatement: If you currently owe penalties from this timeframe, we can use the Kwong ruling as a basis to request those penalties be removed.

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Important Deadlines

The ruling indicates that claims for refunds based on this decision must be filed within three years of the "postponed" deadline. This sets a hard cutoff date of July 10, 2026. If you do not have a claim on file by then, you may lose the right to a refund regardless of the final legal outcome.

Don't Navigate This Alone

Tax law is dense, and the Kwong situation is evolving. If you paid significant penalties during the pandemic years, it is worth reviewing your account transcripts. Contact our office to help you file a protective claim. It’s a proactive measure that ensures if the ruling stands, you aren't left behind when refunds are issued.

Let's Chat!
If any of these topics caught your attention, please contact to start the conversation!
Contact Us
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