The IRS May Owe You Money, But You Only Have Until July 10 to File a Claim

This year's tax deadline has passed and chances are you've already received your refund, but a pandemic-related refund opportunity might put extra cash in your pocket. A federal court ruling means millions of Americans might qualify for the reimbursement of tax penalties and interest charged during the pandemic.

Here's what to know about the refunds and how to file a claim.

A court ruling and a refund opportunity

In Kwong v. United States, the court ruled that when federal disaster declarations went into effect during the COVID-19 pandemic, those declarations postponed federal tax deadlines. Between January 20, 2020 and July 10, 2023, those tax deadlines were extended, meaning the IRS didn't have the authority to charge underpayment interest and other penalties like failure-to-pay, failure-to-file, and estimated tax penalties.

Since the IRS assessed interest and penalties that weren't authorized, Americans who paid those fees may be eligible for a refund. In most instances, Americans have three years after the tax filing deadline to claim unpaid refunds, meaning Americans who may qualify for this refund need to file by July 10, 2026.

Who may qualify for refunds

Millions of Americans may qualify for a reimbursement. Those taxpayers aren't only individuals, but may also include small businesses, large corporations, trusts, and estates.

Taxpayers may qualify if they were assessed penalties for not filing their returns on time or making estimated tax payments. Interest that started accruing earlier than it should have or overpayment of interest during the pandemic time period may also qualify for reimbursement.

A "major refund opportunity" for some taxpayers

Erin Collins, who heads the National Taxpayer Advocate, called the court verdict "a major refund opportunity" in a blog post. She highlighted the fact that the issue is widespread, and it's not limited to a small group of taxpayers.

At this time, the court's decision isn't yet final and the government may appeal it, but if it stands, many people might receive refunds.

How large might refunds be

The size of these potential refunds would depend on the specific fees and penalties each taxpayer was assessed during the pandemic. In some instances, those penalties may be significant. The IRS failure-to-file penalty is 5% of a taxpayer's unpaid taxes monthly, and it has a 25% cap. The failure-to-pay penalty is 0.5% of a taxpayer's balance monthly, and it also has a 25% cap.

How to tell if you're affected

Collins recommended that if you believe you may qualify for a refund, you access and review your IRS tax transcripts from the pandemic to verify the information. You may sign up for an online account with the IRS and use that account to obtain digital copies of your tax transcripts. You may also request to receive transcripts by mail.

Your transcript includes information like when you filed each tax return. It also includes details on the taxes that you were assessed, plus any payments or credits involved with the tax filing. Most importantly, the transcript identifies any penalties or interest you were charged, which may help you determine if you're eligible for a refund.

What to look for in your tax transcript

As you review tax transcripts, focus on the information about your taxes from January 20, 2020, to July 10, 2023, the period qualifying for the refund. Collins recommends that you focus on dates and transaction entries. In particular, look for entries that are related to tax assessments, payments, penalty assessments, interest charges, account adjustments, and refunds, which may not have been allowable during that specific period.

How to file a claim

If you believe you qualify for a refund, you must file a claim, since the refunds are not automatically issued.

In most cases, you may use Form 843 to request a refund or abatement from the IRS. You can't file the form electronically and must mail it. Collins recommended mailing the form via certified mail, which gives you proof that you submitted it before the July 10 deadline.

If you already paid penalties and interest during the pandemic period, you'll use the form to request a refund. If you have unpaid balances resulting from the period in question, then you'll need to use the form to file an abatement request.

Bottom line

Since the court's decision isn't final and the government may appeal, the law regarding these pandemic-era refunds isn't yet finalized and may change. Collins explained that filing a protective claim may help taxpayers maintain their rights to a refund, but she also suggested that taxpayers consult a tax professional for advice. It's important to act quickly to meet the deadline, so don't hesitate to reach out for help if you suspect you may qualify for a refund.

A tax professional may be able to confirm whether you qualify for a settlement, plus they may be able to help you file a claim. If you qualify for a refund, that payment may help you eliminate some money stress.

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