Did You Pay IRS Penalties During COVID? A New Ruling Could Mean a Refund

If you felt the sting of IRS penalties or interest charges between 2020 and 2023, you might have an opportunity to get that money back. A recent court decision has challenged how the IRS handled deadlines during the COVID-19 pandemic, potentially opening the door for refunds on charges that many of us assumed were final.

The ruling in Kwong vs. United States is a significant development for individuals and small business owners who faced federal tax penalties during the pandemic years. Here is what happened, and more importantly, what steps we can take to preserve your right to a refund.

Happy woman chatting on phone regarding tax refund news

The Kwong Ruling: A Shift in Deadlines

At the heart of the Kwong vs. U.S. decision is a disagreement over dates. The U.S. Court of Federal Claims ruled that Internal Revenue Code Section 7508A(d) essentially created a mandatory, automatic extension of tax deadlines during the federally declared disaster of COVID-19.

While the IRS argued these extensions were limited, the court found that the relief period actually spanned from January 20, 2020, to July 10, 2023.

Why This Matters for Your Wallet

If the court’s interpretation stands, legal tax deadlines were effectively pushed to July 10, 2023. This means that "failure-to-file" or "failure-to-pay" penalties assessed against you before that date may have been technically incorrect. If the penalty shouldn't have been applied in the first place, you shouldn't have had to pay it—and you may be owed a refund.

Steps to protect Your Potential Refund

Because this is a developing legal situation, we need to be proactive without making assumptions. Here is the strategic approach we recommend.

1. Review Your Account History

First, we need to see if you actually paid penalties during the window of eligibility. Look for assessments made between January 20, 2020, and July 10, 2023.

You can review this by accessing your tax transcripts. These are free and available via the online Get Transcript tool on IRS.gov. You can also request them by mail (Form 4506-T) or by calling 800-908-9946, though the online tool is much faster. If navigating IRS transcripts feels overwhelming, just let us know—we can pull these records for you.

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If you’re ready to get a handle on your tax situation, reach out and we’ll guide you through each step.

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2. File a Protective Refund Claim

This is the most critical step. The government may appeal the Kwong decision. However, we cannot wait for the appeal process to finish because the statute of limitations (the deadline to claim a refund) keeps ticking.

We recommend filing a "Protective Claim" using Form 843. Think of this as holding your place in line. It preserves your right to a refund if the ruling holds up, preventing the statute of limitations from expiring while the lawyers battle it out in court.

Accountant discussing tax strategy on laptop

3. Request Penalty Abatement

If you currently owe penalties from this period, we can use the Kwong decision as grounds to request they be removed (abated). Additionally, starting in 2026, the IRS plans to apply First-Time Abatement (FTA) automatically for eligible taxpayers, which gives us another tool in the toolbox.

Important Deadlines

Do not put this on the back burner. To be eligible for refunds under this ruling, claims generally must be filed within three years of the legally recognized deadline. According to the court, that clock stops on July 10, 2026.

While that sounds like a long way off, compiling records and filing protective claims takes time.

We Can Walk You Through It

Tax law changes fast, and court rulings like this can be confusing. If you know you paid penalties during the pandemic, or if you just want us to double-check your transcripts to see if you are eligible for relief, reach out to us.

We can handle the protective claim filing for you, ensuring your rights are locked in while we wait for the final word on the Kwong case. It’s better to have a claim on file and not need it, than to miss out on a refund you rightfully deserve.

Virtual AI

If you’re ready to get a handle on your tax situation, reach out and we’ll guide you through each step.

Let’s Sort This Out

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