The Kwong Ruling: How to Reclaim COVID-Era Tax Penalties Before the 2026 Deadline

If you found yourself paying IRS penalties or interest on tax bills during the height of the COVID-19 pandemic, you might be entitled to a refund. However, with the calendar now reading 2026, the window to act on this opportunity is closing rapidly.

A significant decision in the case of Kwong vs. United States by the U.S. Court of Federal Claims has challenged how the IRS handled deadlines during the pandemic. This ruling suggests that many failure-to-file and failure-to-pay penalties assessed between 2020 and 2023 may have been applied incorrectly. Below, we break down what this legal shift means for your wallet and the specific steps required to protect your refund rights before time runs out.

Washington DC government building representing federal tax court rulings

The Core of the Kwong Decision

In the Kwong case, the court determined that the 2019 version of Internal Revenue Code Section 7508A(d) mandates an automatic extension of tax deadlines during federally declared disasters. While the IRS argued that extensions could be limited to one year, the court rejected this stance.

Because the COVID-19 emergency declaration spanned from early 2020 through mid-2023, the court ruled that the statutory tax deadlines were effectively pushed to July 10, 2023. Consequently, penalties and interest accrued on late payments or filings prior to that date may be legally voidable.

Is Your Tax Account Eligible?

The practical implication here is substantial: if the legal deadline was July 10, 2023, then "late" penalties assessed before that date shouldn't exist. This opens a clear pathway for taxpayers to request refunds for amounts paid on what the IRS previously considered delinquent accounts.

Critical Steps to Take Immediately

With the statute of limitations looming, we recommend a proactive approach to reviewing your account history.

  1. Audit Your Transcripts: First, we need to verify if penalties or interest were assessed on your account for deadlines falling between January 20, 2020, and July 10, 2023. You can access your tax records for free using the Get Transcript tool on IRS.gov. Alternatively, you can request them by mail (Form 4506-T) or by calling 800-908-9946, though online access is fastest.

  2. File a Protective Refund Claim: Because the government may appeal the Kwong decision, the most strategic move is to file a "protective claim." By submitting Form 843 (Claim for Refund and Request for Abatement), you essentially hold your place in line. This prevents the statute of limitations from expiring while the legal battle concludes.

  3. Leverage New 2026 Relief Options: As of this year, 2026, the IRS is implementing automatic First-Time Abatement (FTA) for eligible taxpayers with a clean three-year compliance history. This serves as an excellent secondary strategy for removing penalties if the Kwong argument faces delays.

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Strategic planning for tax refund claims

The Deadline is July 10, 2026

Timing is the most critical factor right now. The ruling dictates that refund claims related to this decision must be filed within three years of the legally recognized deadline. That puts the final cutoff date at July 10, 2026.

We are currently just months away from this deadline. If you do not have a protective claim on file by that date, you will permanently lose the right to recover these specific funds, regardless of the final legal outcome.

Next Steps

Don't assume the IRS will automatically send a check. If you paid significant penalties during the pandemic era, contact our office immediately. We can help review your transcripts and file the necessary protective claims to ensure you don't miss out on a potential refund due to a technicality.

Let’s Start a Conversation.
You can count on us for professional guidance along with timely, and reliable tax services. If you’re ready to get started, or just want to start a conversation, then click below.
Learn More
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