You may have a once-in-a-generation opportunity to claim refunds or obtain abatement of IRS penalties and interest that were assessed or paid during the COVID-19 pandemic. However, you must act quickly to preserve your potential claim.
What the Kwong Decision Could Mean for Taxpayers
Here is the background: In Kwong v. United States, the U.S. Court of Federal Claims ruled that a COVID-era disaster relief statute automatically postponed many federal tax deadlines from January 20, 2020, through July 11, 2023. Until now, the IRS had largely ignored this provision.
Who May Qualify for Refunds or Penalty Relief
As a result, you may qualify for refunds or abatement of failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, and underpayment interest that accrued during this 3.5-year disaster period. These amounts can be substantial.
At this stage, however, you should not assume the IRS will automatically issue refunds. The IRS will likely challenge the broad application of the Kwong decision, and appellate courts could narrow or overturn the ruling. In addition, the decision currently applies only to the taxpayer involved in that case and does not bind the IRS with respect to other taxpayers.
For that reason, you should take steps now to preserve your rights while the litigation continues.
Steps to Protect Your Potential Refund Claim
You should review your IRS account transcripts at IRS.gov for tax years 2019, 2020, 2021, and 2022 to determine whether the IRS assessed or collected penalties or interest during the COVID disaster period. You should also review earlier years to determine whether penalties or interest continued to accrue between January 20, 2020, and July 11, 2023.
If you paid penalties or interest, received assessments, or received IRS notices during this period, you should consider filing a protective refund claim with the IRS. Taxpayers use protective claims when their right to a refund depends on future events, such as the final outcome of ongoing litigation.
Filing a protective claim preserves your right to seek a refund if the courts ultimately rule in the taxpayers’ favor in Kwong. If you do not file a timely claim, you may permanently lose the opportunity to recover these amounts.
Under the Kwong decision, you must file your protective claim by July 10, 2026, so time is limited.
Related Reading: Stay informed about the latest IRS developments by exploring our other articles on IRS updates and tax guidance.
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