Beyond Penalties and Interest: How Kwong May Affect Missed Tax Refunds (Part IV)

Don’t miss potential tax refunds tied to COVID-19 relief rules. Learn who may still qualify and how to protect your refund rights before key deadlines expire.

As I explained in prior blogs, recent legal developments, including the court’s opinion in Kwong, suggest that various tax-related deadlines were postponed during the nearly 3.5-year COVID-19 federal disaster period. Most public discussion surrounding Kwong has focused on penalties and interest. However, taxpayers and practitioners are also examining whether the court’s interpretation of IRC § 7508A may affect other tax-related deadlines, including whether some taxpayers may still be eligible to claim tax refunds for prior years.

 

This blog discusses whether taxpayers who overpaid tax for tax years 2019 through 2022 may still have time to file refund claims. This may include taxpayers who never filed original returns, as well as taxpayers who may benefit from filing amended returns to claim additional credits, deductions, or payments.

 

Importantly, the law in this area remains unsettled. Similar issues are being raised in pending litigation, and future court decisions could expand, narrow, distinguish, or reject aspects or implications of Kwong. Taxpayers should carefully evaluate their individual circumstances before filing claims based on the court’s reasoning. Even though the law is still developing, many taxpayers may need to act on or before July 10, 2026, to protect potential refund rights while the courts continue deciding these issues.

 

What to Know If You Are New to Kwong

 

If you are catching up on this series:

• Part I explains the potential scope of Kwong and why many taxpayers may need to act on or before July 10, 2026;
• Part II explains how IRS transcripts can help identify penalties and interest potentially affected by Kwong; and
• Part III explains how taxpayers can protect potential claims by filing refund or protective claims.

 

How Kwong May Affect Tax Refunds

 

Based on the reasoning of Kwong, some taxpayers may argue they have additional time to file tax refund claims relating to tax years 2019 through 2022. Depending on the taxpayer’s circumstances, this could include taxpayers seeking refunds through original or amended returns. Many taxpayers may wish to consider acting on or before July 10, 2026, as discussed further in a prior blog. However, deadlines may vary depending on the taxpayer’s facts, including whether the taxpayer previously filed a return, the type of claim involved, and when the taxpayer made payments.

 

In the context before it, the court in Kwong interpreted IRC § 7508A(d) (as in effect at the relevant time) to require that certain periods during the COVID-19 disaster relief period, January 20, 2020, through July 10, 2023, be “disregarded” when determining whether specified acts were timely. Taxpayers may argue that this interpretation extends the normal time limits for filing certain refund claims.

 

The government has argued in litigation that IRC § 7508A(d) should be interpreted more narrowly and that the tax code disaster relief provisions did not suspend refund limitation periods as broadly as some taxpayers contend. Although Kwong addressed whether a refund suit filed after the relevant statute of limitations was timely, taxpayers have argued that the court’s interpretation of IRC § 7508A(d) has broader implications for other tax-related deadlines.

 

Why This Matters for Non-Filers

 

Many taxpayers who did not file returns for tax years 2019 through 2022 may still be entitled to refunds because taxes were withheld from wages or other income, or because estimated tax payments were made during the year. Generally, taxpayers only have three years to claim refunds for withholding and estimated tax payments, which in most cases, are treated as paid on the due date of the return. The law limits the amount of the refund the IRS may issue to the amount paid within a “lookback period.”

 

Under the reasoning of Kwong and subsequent statutory changes enacted through the Disaster Related Extension of Deadlines Act, some taxpayers may argue that periods relevant to filing refund claims and applying lookback rules were suspended during the COVID-19 disaster period. As a result, some taxpayers who otherwise would have been time-barred may still wish to consider filing claims.

 

Example: A taxpayer who had taxes withheld from wages in 2020 but never filed a 2020 return may ordinarily have lost the ability to claim a refund after the normal three-year period expired. Under the reasoning of Kwong, that taxpayer may still wish to consider filing a claim on or before July 10, 2026.

 

Many affected taxpayers may have low or moderate incomes and may be unaware they still could have an opportunity to seek refunds. By not filing returns, taxpayers may permanently lose access to refunds to which they may otherwise have been legally entitled. For many taxpayers, particularly low-income workers and families, these refunds may represent significant amounts tied to withholding, refundable credits, or missed stimulus-related benefits. Reviewing prior-year eligibility now may help taxpayers avoid permanently losing access to funds. A protective claim is a filing used to preserve refund rights while legal issues remain unresolved.  Taxpayers who are unable to complete accurate returns before a potential deadline may wish to consult a tax professional about filing a protective refund claim.

 

 

 

Kwong May Affect Credits and Other Tax Benefits

 

The reasoning of Kwong may also raise questions about whether some taxpayers can still qualify for certain prior-year credits, deductions, or tax benefits. For example, taxpayers who did not receive the full Economic Impact Payments, commonly known as stimulus payments, may argue they still have time to file 2020 or 2021 returns or protective claims seeking Recovery Rebate Credits.

 

Some tax benefits depend on deadlines tied to return due dates. For example, taxpayers generally must obtain Social Security numbers for certain qualifying family members before the due date of the return to claim the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC). Under the reasoning of Kwong, taxpayers may argue that postponed return due dates (July 10, 2023) also extended certain related refund deadlines to July 10, 2026. However, courts could conclude that some eligibility requirements are substantive conditions for credits rather than procedural filing deadlines, and therefore are not affected by disaster postponement rules.

 

Taxpayers should proceed cautiously as the court in Kwong did not directly address eligibility requirements for specific credits or deductions, and these are possible implications of the court’s reasoning rather than settled law. Whether courts or the IRS would ultimately accept these arguments remain uncertain. Taxpayers should also remember that filing a claim does not guarantee the IRS will allow the refund, and some claims may receive additional IRS review.

 

Congress also temporarily changed eligibility rules for several credits during tax years 2020 through 2022, including:

 

• Allowing some taxpayers to use prior-year earned income for EITC and CTC purposes;
• Temporarily expanding the CTC in 2021; and
• Expanding eligibility for the Premium Tax Credit.

 

Practice Tip: Taxpayers filing original or amended returns for tax years 2019 through 2022 must file on paper because IRS systems generally only accept e-filed individual returns for the current year and two prior years. Taxpayers filing protective claims may also wish to clearly label the filing as a “Protective Refund Claim Pursuant to Kwong,”  the COVID-19 disaster postponement issue, or use similar language clearly identifying the issue involved. Taxpayers considering Kwong-based arguments relating to credits or deductions, or protective claims should review current IRS procedures and may wish to consult a qualified tax professional.

Taxpayers should exercise care when choosing a tax professional. They should work with a reputable accountant or return preparer who has appropriate credentials, experience, and a track record of ethical conduct. Be cautious about sharing sensitive personal and financial information, and do not assume that all preparers are equally qualified. Taxpayers should also be wary of anyone who charges excessive fees, bases fees on the size of your refund, or pressures you to take positions you do not understand or that seem too good to be true. Taking a little extra time to verify who you are working with can help protect both your information and your finances.

Taxpayers Who Already Filed May Consider Amended Returns

 

Taxpayers who already filed Forms 1040, 1040-SR, or 1040-NR but need to revise items affecting refunds generally should use Form 1040-X, Amended U.S. Individual Income Tax Return.

 

Important Note: This remains a complex and evolving legal issue. This blog is intended to raise awareness and help taxpayers understand potential issues that may affect their rights. It is not legal advice.

 

Because the law remains unsettled, taxpayers should assume the IRS will not automatically allow claims based on Kwong. However, taxpayers who may be affected should carefully consider whether filing a refund claim or protective claim on or before July 10, 2026, is necessary to preserve potential rights while these legal issues continue to develop.

 

Taxpayers should not lose potential rights simply because they were unaware of evolving legal developments or lacked access to professional advice.

 

Conclusion

 

The reasoning of the Kwong decision may provide support for some taxpayers seeking refunds relating to tax years 2019 through 2022, not just claims involving penalties and interest. For some taxpayers, that may mean filing an original return. For others, it may mean filing an amended return or protective refund claim.

 

Although the law remains unsettled and taxpayers should not assume relief is automatic, taxpayers also should not lose the opportunity to preserve potential claims simply because they were unaware relief may be available or did not realize they needed to act promptly.

 

Taxpayers should also exercise care when choosing a tax professional. Be cautious about sharing sensitive information and wary of anyone who promises guaranteed refunds, charges excessive fees, or pressures taxpayers to take positions they do not understand.

 

For many taxpayers, particularly low-income workers and families, these claims may involve significant financial support tied to withholding, refundable credits, or stimulus-related benefits. Ensuring taxpayers have a meaningful opportunity to preserve and pursue potential refund claims is an important component of protecting taxpayer rights, including the rights to pay no more than the correct amount of tax and to a fair and just tax system.

 

 

 

Resources

• Tens of Millions of Taxpayers May Be Eligible for Refunds – Act on or Before July 10 (Part I)
• How to Use IRS Tax Account Transcripts to Identify Potential COVID-19 Disaster Relief Refunds (Part II)
• Protect Your Potential COVID-19 Disaster Relief Refunds By Filing Formal or Protective Claims for Refund (Part III)

 

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