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Millions of taxpayers may have paid IRS penalties during the pandemic that should never have been charged. But a recent federal court ruling could now create an opportunity to recover some of that money.
If you were charged penalties or interest for late filing, late payment, or underpayment between 2020 and 2023, you may still be eligible for relief and a chance to keep more of what you earn. The IRS, however, is not expected to automatically issue refunds. That means many taxpayers may need to act before a key 2026 deadline.
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What the Kwong ruling says
The issue comes from a U.S. Court of Federal Claims case called Kwong v. United States. The court found that the IRS should not have assessed certain penalties and interest from January 20, 2020 through July 10, 2023.
That period includes the COVID-19 federal disaster period plus 60 days. Under the court's reading of disaster-relief tax rules, certain filing and payment deadlines were postponed during that window, meaning some taxpayers may not have been late after all.
Why this could matter to everyday taxpayers
This is not just a technical tax issue for large companies or people with complicated returns. Tens of millions of Americans may have been assessed penalties or interest during the pandemic years, according to a recent blog post from the Taxpayer Advocate Service.
For some people, the amount may be small. For others, especially those who owed back taxes, missed estimated payments, or filed late returns, the total could be more meaningful. Even a few hundred dollars often matter when household budgets are already tight.
Who could potentially qualify
Eligibility could be broad. Individuals, businesses, nonprofits, estates, and trusts may all be affected if they had tax obligations due between January 20, 2020, and July 10, 2023.
Because COVID-19 was a nationwide disaster, nearly all U.S. taxpayers may meet the geographic requirement. The key question is whether the IRS charged you penalties or interest tied to a tax deadline that fell during the disaster window.
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Which penalties may be included
The ruling may apply to several common IRS charges. These include failure-to-file penalties, failure-to-pay penalties, underpayment penalties, and related interest.
For example, someone who filed a 2021 return late or missed estimated tax payments during the pandemic may want to review their IRS records. Self-employed workers, freelancers, and small-business owners could be especially likely to have penalties tied to estimated payments.
The ruling is not final yet
Taxpayers, however, should not assume refunds are guaranteed. The IRS is expected to appeal the decision, which means the final outcome could change.
That uncertainty is why many taxpayers may consider filing a protective claim. A protective claim tells the IRS you are preserving your right to a refund if the Kwong decision ultimately stands. It does not mean the IRS will likely pay immediately.
How to check your IRS records
Start by logging into your IRS online account and pulling your account transcripts for tax years 2019 through 2022. These transcripts usually show penalties, interest, payments, and other account activity.
Look for penalty or interest charges that accrued between January 20, 2020, and July 10, 2023. The transcript may not be easy to read, so taxpayers who are unsure may want to ask a tax professional for help.
How to file a claim
Most taxpayers will liley use Form 843, Claim for Refund and Request for Abatement. This form cannot be filed electronically, so it must be printed and mailed to the IRS.
The National Taxpayer Advocate recommends sending the form by certified mail so you have proof it was sent on time. Taxpayers should write "Protective Refund Claim Pursuant to Kwong Case" across the top and file a separate form for each tax period.
Refunds vs. abatements
If you already paid the penalties or interest, you would generally be asking the IRS for a refund. If the charges are still unpaid, you would generally be asking for an abatement.
An abatement simply means the IRS removes or reduces a penalty or interest charge it says you owe. Either way, the goal is to preserve your rights while the courts decide whether the Kwong ruling holds.
Why the July 2026 deadline matters
For many claims, the deadline is July 10, 2026. That date matters because taxpayers generally have limited time to request refunds from the IRS.
The legal fight could take years to resolve. If you wait until every appeal is finished, you may miss the deadline to claim money you could have been eligible to receive. Filing a protective claim now may help avoid that problem.
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Bottom line
The Kwong ruling could create a major refund opportunity for taxpayers charged pandemic-era IRS penalties and interest. But the relief is uncertain, and it is not expected to happen automatically.
That said, reviewing your IRS transcripts represents a great opportunity to check up on your financial health. If penalties or interest show up during the disaster window, filing Form 843 before July 10, 2026, may preserve your chance at a refund or abatement. And because the legal situation is still evolving, taxpayers may also want to consider speaking with a qualified tax professional before filing a claim.
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