A recent federal court decision may entitle millions of taxpayers to refunds on IRS penalties and interest charged during the COVID-19 pandemic. But the window to act is closing.
If you were charged penalties or interest by the IRS for late filing or late payment on a tax obligation due between January 2020 and July 2023, a recent court decision may change what you owe or what you are owed.
In November 2025, the U.S. Court of Federal Claims ruled in Kwong v. United States that the IRS improperly assessed certain penalties and interest during the COVID-19 federal disaster period. The decision has significant implications for individuals, businesses, trusts, estates, and nonprofits, and there is a deadline approaching that taxpayers need to be aware of.
What the Kwong v. United States Case Is About
During the COVID-19 pandemic, a federal disaster declaration was in effect from January 20, 2020, through May 11, 2023. Under the tax code, when a federally declared disaster occurs, certain filing and payment deadlines are supposed to be automatically postponed for the duration of the disaster plus 60 additional days, bringing the effective end date to July 10, 2023.
During that 3.5-year window, the IRS offered some limited extensions but continued to assess failure-to-file penalties, failure-to-pay penalties, estimated tax penalties, and interest on obligations that fell within the disaster period.
The court in Kwong ruled that the IRS got this wrong. The statute required a mandatory, automatic postponement of those deadlines for the entire disaster period. That means tax returns and payments due anytime between January 20, 2020, and July 10, 2023, were not actually late under the law, and the penalties and interest the IRS charged on them may have been improper.
Who May Be Affected by the Kwong Decision
Because COVID-19 was a nationwide disaster, nearly all U.S. taxpayers meet the geographic qualification. You may be affected if you are an individual, business, trust, estate, or nonprofit that was assessed any of the following during the disaster period:
- Failure-to-file penalties
- Failure-to-pay penalties
- Estimated tax penalties
- Interest on unpaid tax or penalties
This includes taxpayers whose original due date may have preceded January 20, 2020, but whose penalties or interest continued to accrue during the disaster window. Those situations are more nuanced but may still support a partial relief argument.
Why There Is a Deadline to Act on the Kwong Decision
The IRS will not issue these refunds automatically. Taxpayers who believe they may be eligible need to take action to preserve their rights.
For most taxpayers, the deadline to file a claim for refund is July 10, 2026. That is less than two months away.
The standard refund window is generally the later of three years from the filing deadline or two years from the date of payment. Because the Kwong decision treats the COVID-19 disaster period as extending deadlines through July 10, 2023, the three-year clock runs out on July 10, 2026, for most filers.
If you paid penalties or interest after July 10, 2024, the two-year rule may give you additional time. But for the majority of taxpayers, July 10, 2026, is the date that matters.
What You Should Do About the Kwong Decision
It is important to understand that the Kwong decision is not yet final. The government is expected to appeal, and the case could take years to fully resolve. However, waiting for a final outcome is not an option if it means missing the filing deadline.
This is where protective claims come in. A protective claim preserves your right to a refund while the legal question is still being decided. If the courts ultimately rule in favor of taxpayers, your claim is on file. If the decision is reversed, the IRS will simply deny the claim.
The process involves filing IRS Form 843, Claim for Refund and Request for Abatement. The form cannot be filed electronically and must be mailed. The IRS does not confirm receipt, so it should be sent by certified mail to establish proof of timely filing.
Key Takeaways from the Kwong v. United States Decision
- The court ruled that the IRS improperly charged certain penalties and interest during the COVID-19 disaster period (January 20, 2020, through July 10, 2023).
- Individuals, businesses, trusts, estates, and nonprofits may be eligible for refunds or abatements.
- The IRS will not issue refunds automatically. You must file a claim.
- For most taxpayers, the deadline to file is July 10, 2026.
- Filing a protective claim now preserves your rights while the legal process continues.
If you have questions about whether the Kwong decision applies to your situation, or if you need help filing a protective claim before the July 10 deadline, reach out to the Lanigan Ryan team. We are here to help you determine your next steps.
