Tens of Millions of Taxpayers May Be Eligible for Significant Tax Refunds – If They Act by July 10 (Part I)

At a Glance

 

• Tens of millions of taxpayers may be entitled to refunds of COVID-19 period penalties and interest.
• Relief will not be automatic—most taxpayers must file refund claims by July 10, 2026.
• Complex legal developments and a lack of information create a risk that many taxpayers will miss out entirely.
• Without IRS or congressional action, outcomes may unfairly favor the “well advised” over the “unaware.”

 

A Major Refund Opportunity—But Taxpayers Must Act to Protect Their Rights

 

Tens of millions of taxpayers may be entitled to refunds or abatements of penalties and interest that the IRS assessed during the nearly 3½-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 by July 10, 2026.

 

This situation highlights a core concern I have raised repeatedly: When relief exists but is difficult to access, taxpayers—especially those without representation—are at risk of losing benefits. That outcome undermines fundamental taxpayer rights, including the right to be informed, the right to pay no more than the correct amount of tax, and the right 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. Internal Revenue Code (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 3½-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 3½-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.  Treas. Reg. § 301.7508A-1(f), Example 4, 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 by 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.

 

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 3 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 by 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.

 

What Is a Protective Claim?

 

A protective claim allows you to preserve your right to a refund while the law is still uncertain. You do not need to calculate the exact amount of your requested refund. The IRS’s Internal Revenue Manual (IRM) says: “A valid protective claim need not state a particular dollar amount or demand an immediate refund; however, the claim must identify and describe the contingencies affecting the claim; must be sufficiently clear and definite to alert the IRS as to the essential nature of the claim; and must identify a specific year or years for which a refund is sought.”  IRM 25.6.1.10.3.2.5(2) (07-05-2024).

 

As directed by this IRM provision, taxpayers would need to file a Form 843, write “Protective Refund Claim Pursuant to Kwong Case” or something similar across the top, and fill in as much detail as possible. Generally, taxpayers will need to file the form by July 10, 2026. Protective claims are essential to preserve a taxpayer’s right to a refund when the final legal determination occurs after the standard period of limitations for filing a refund claim has expired. Taxpayers can also file protective claims for abatement of interest and penalties assessed but not yet paid.

 

Typically, the IRS holds protective claims for refunds in suspense until the underlying issue is resolved by the courts, and the claim can be perfected by providing the final numbers based upon the court’s decision. Protective claims prevent the period of limitations from expiring while waiting for a final resolution. Unfortunately, the resolution may take years.

 

A Practical Challenge: Paper Is Still the IRS’s Kryptonite

 

Even for taxpayers who learn about this issue, protecting their rights is not simple. Taxpayers cannot file Form 843 electronically. Form 843 must be submitted on paper. This creates real challenges.

 

For taxpayers, paper filing is slower, less accessible, and more difficult to track. The IRS does not provide immediate confirmation it has received the claim. As a result, taxpayers are well advised to send their refund claims by certified mail so they can prove they timely submitted them in the event they are lost or misplaced. For the IRS, paper claims are labor-intensive to process and difficult to track and manage at scale. If millions of taxpayers file claims, the IRS could face significant administrative strain, leading to delays and the potential for inconsistent treatment.

 

The IRS should quickly develop a means to allow taxpayers to file their claims electronically and implement it immediately. The IRS and taxpayers do not need paper Forms 843 clogging up the system.

 

Avoiding Disparate Results for Similarly Situated Taxpayers

 

The right answer from a policy and fairness standpoint is clear:  If the courts rule that filing and payment deadlines were postponed for the 3½-year COVID-19 disaster period, all taxpayers assessed penalties and interest during that period should receive refunds or abatements.  If the courts rule in favor the IRS’s position, no taxpayers should receive relief.  But consistent treatment of taxpayers is unlikely because the law generally requires taxpayers to file claims to receive refunds or abatements.

 

Thus, without action, this situation may well produce dramatically different outcomes for the “well advised” vs. the “unaware.” Taxpayers with advisors are more likely to learn about the issue, file timely claims, and potentially receive refunds. Taxpayers without representation, particularly lower-income taxpayers, may never hear about it and may lose their rights to refunds.

 

I encourage the IRS and the Treasury Department to do everything they can to avoid that result, including asking Congress to authorize retroactive relief if they determine they lack the administrative authority to ensure equal treatment under current law.

 

What Should the IRS Do?

 

The IRS’s top priority should be to comply with the Taxpayer Bill of Rights. These rights include the right to be informed, the right to pay no more than the correct amount of tax, including interest and penalties, the right to challenge the IRS’s position and be heard, and the right to a fair and just tax system.

 

The IRS should act now to protect taxpayer rights. I recommend the IRS take four steps:

 

1. Publicize this issue to provide taxpayers with the information they need to understand it and to file refund claims, protective refund claims, or requests for abatement of interest and penalties. Even if the IRS disagrees with the Kwong decision, I believe it has an obligation to inform taxpayers about their rights, so taxpayers don’t miss the claims deadline if the ultimate resolution of this issue supports their right to the refund or abatement of interest and penalties.

 

2. Provide taxpayers with an additional six-month extension to file refund claims. IRC 6081 allows the Secretary of the Treasury to grant a reasonable extension of time to file any return, declaration, statement, or other required document under the tax code or regulations. The IRS should consider providing this extension in the case of refunds or protective claims. That would give taxpayers more time to learn about the issue, reduce the risk of unintentionally losing their rights, and promote fair and consistent treatment. It is a straightforward and appropriate step.

 

3. Consider providing relief systemically to all eligible taxpayers so that taxpayers do not have to file refund claims, protective refund claims, or requests for abatements. To me, this is a fundamental taxpayer rights issue. It would be unfair in the extreme to end up with different results for the “well advised” and the “unaware.” This result should be avoided. The IRS should explore every plausible legal means to ensure equitable treatment. Similarly situated taxpayers should get similar results.

 

4. Create an electronic portal or mailbox to which taxpayers may submit Kwong-related refund claims and receive acknowledgements that their claims have been received. As

noted above, Forms 843 currently must be submitted on paper. That imposes considerable burden on taxpayers, who are advised to obtain proof of mailing and generally must travel to the Post Office to do so. If the IRS makes it possible for taxpayers to e-file Kwong-related refund claims (and eventually all refund claims) and receive immediate electronic acknowledgements of receipt, that burden would be alleviated.

 

What Should Practitioners, Members of Congress, and the Press Do?

 

We Need to Get the Word Out. 

 

Taxpayers should not lose their rights simply because they were unaware of a complex legal development – or because the process to protect those rights is too burdensome.

 

I encourage Members of Congress to highlight this issue in their constituent communications, members of the media to report about it for their subscribers, and tax professionals to make sure their clients are informed.

 

Awareness, access, and fairness are essential to effective tax administration.

 

An Important Note

 

This is a complex and evolving legal issue. This blog is intended to raise awareness – not to provide legal advice. Taxpayers should review their individual circumstances and consider seeking professional guidance where appropriate.

 

Conclusion

 

Congress enacted the mandatory postponement rules to provide relief during extraordinary events. At the time the rules were enacted, it’s unlikely many observers anticipated a disaster lasting as long as the COVID-19 federal disaster period. But there is little doubt COVID‑19 was a once-in-a-century type of event that did, in fact, disrupt our lives for an extended period. Under the court’s interpretation in Kwong, the mandatory postponement period is based on the length of the disaster, and the COVID-19 disaster period continued for 3½-years. Because of the infrequency of a disaster lasting this long, most taxpayers, even most tax professionals, did not foresee that filing deadlines and payment deadlines would be postponed for this long and that return filings and payments during the federal disaster period would not be considered late and therefore not subject to penalties and interest. But that is the logical extension of what the court ruled.

 

Unless the IRS or Congress acts to ensure all affected taxpayers will receive refunds if the Kwong decision is upheld, taxpayers seeking refunds for penalties and interest they paid relating to that period will, in most cases, need to file claims by July 10th. At the risk of repetition, my overriding goal is to get the word out to as many taxpayers as possible and to avoid disparate results between the “well advised” and the “unaware.”

 

This is a moment for the Treasury Department, the IRS, and Congress to act – to provide time, clarity, and fairness – and to ensure that all taxpayers have a meaningful opportunity to receive the relief Congress provided.

 

Stay tuned for Part II of this blog series, which will explain how to find relevant information on your transcript, and Part III, which will provide guidance on filing claims for refund and protective claims.

 

 

NTA Blog: New U.S. Postal Service Rules Could Affect Whether Your Tax Filing Is Considered On Time

 

NTA Blog:  A Win for Taxpayers: Disaster Related Extension of Deadlines Act

 

Other TAS resources to link:

 

 

 

 

 

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