Tens of Millions of Taxpayers May Be Eligible for Significant Tax Refunds

Tens of millions of taxpayers may be entitled to refunds or abatements of penalties and interest that the IRS assessed during the nearly 3.5-year COVID-19 federal disaster period. However, this relief will not happen automatically. To protect their rights, most taxpayers must file a claim for refund – generally on or before July 10, 2026.

That outcome undermines fundamental taxpayer rights, including the rights to be informed, pay no more than the correct amount of tax, and to a fair and just tax system.

Understanding the Kwong Decision and Its Implications

This issue arises from recent court decisions, most notably Kwong v. United States, 179 Fed. Cl. 382 (Nov. 2025), interpreting a tax code provision that governs disaster-related filing and payment deadline postponements. IRC § 7508A(d), as it existed when the COVID-19 federal disaster was declared, provides for the automatic postponement of filing and payment deadlines during the period a federal disaster declaration is in effect, plus 60 days.

For COVID-19, a federal disaster declaration was in effect from January 20, 2020, through May 11, 2023. Sixty additional days extended the period to July 10, 2023, for tax purposes. Based on the court’s reasoning in Kwong, filing and payment deadlines were postponed during that entire period, and as a result, tax returns and payments due anytime within that window were not late until after July 10, 2023. By the court’s logic, the IRS should not have assessed penalties for late filing or payment during that 3.5-year period, nor charged interest on those amounts.

The government’s pleadings interpreted the postponement statute more narrowly and disagreed that the statute suspended filing and payment obligations for 3.5 years. I anticipate the Department of Justice will appeal the decision.

But the Kwong opinion is explicit in saying: “The plain meaning of that statute is that the automatic extension runs from the beginning of the disaster declaration, through the end of the declared disaster period, and until 60 days after the end of the declared disaster period.” It may take several years until the issue is finally resolved by the courts.

What This Means for You

Under the reasoning of the Kwong decision, you may be entitled to a refund or abatement of certain amounts assessed during the COVID period, including:

Penalties assessed for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments;
Interest that began accruing earlier than it should have, or not at all; and
Overpayment interest for the 2020–2023 disaster period.

Some practitioners believe that even where the underlying liability arose before the disaster period began, you may not have had to pay interest or penalties during that period. Again, the IRS disagrees. Example 4 in Treas. Reg. § 301.7508A-1(f), states a taxpayer already delinquent before January 20, 2020, does not receive a windfall elimination of pre-disaster penalties and interest. But the regulation will not control the outcome if a court determines the statutory language provided for suspension of all timing penalties and interest accruals, and the Kwong opinion did not address pre-disaster delinquencies.

The bottom line: You may be entitled to a refund or reduction of assessed penalties and interest. For taxpayers dealing with financial pressures, these amounts can make a real difference. But most taxpayers must act on or before July 10, 2026, to request their potential refunds.

Who Could Be Affected

This issue is widespread and not limited to a small or specialized group of taxpayers. As noted, tens of millions of taxpayers have been assessed penalties or interest for late filings or payments during these years.

If the court’s decision in Kwong ultimately holds up, these taxpayers should be entitled to refunds of penalties or interest paid and to abatements of penalties or interest not yet paid. In addition, for cases currently in litigation, the IRS could not assess penalties or interest for the relevant years.

Impacted taxpayers represent a broad cross-section of the public, including individuals, small businesses, large corporations, estates, and trusts. The issue reaches taxpayers with obligations related to income, employment, estate, gift, and excise taxes. It may also affect taxpayers who filed late international information returns, which can result in significant penalties even when no tax is due.

Many taxpayers affected by this issue have low and moderate incomes. These taxpayers are less likely to have professional representation and to learn about complex legal developments like this one. As a result, they face a greater risk of missing the opportunity to claim refunds to which they may be entitled.

Who Could Be Affected

Many taxpayers affected by this issue have low and moderate incomes. These taxpayers are less likely to have professional representation and to learn about complex legal developments like this one. As a result, they face a greater risk of missing the opportunity to claim refunds to which they may be entitled.

What You May Need to Do

In most cases, the IRS does not issue refunds or abate tax assessed but not yet paid unless a taxpayer files a claim. The taxpayer must generally file their claim within three years from the date they filed their tax return or two years from the date they paid their tax. Most taxpayers will need to file claims on or before July 10, 2026, using Form 843, Claim for Refund and Request for Abatement. Because the law in this area is still being litigated, taxpayers should also consider filing protective claims to preserve their rights (see below).

Taxpayers with ongoing examinations, Appeals proceedings, or litigation may have open statutes for the applicable years that provide additional time to claim a refund. They should assess the impact of the Kwong issue on any settlement discussions or on their litigation approach.

SOURCE

AUTHOR: TAXPAYER ADVOCATE SERVICE

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