Refund of COVID-Era Tax Penalties
A recent decision by the U.S. Court has raised the possibility that millions of taxpayers were improperly charged penalties and interest during the pandemic period — and that a deadline to file a refund claim is fast approaching.
Written by: Chris Sternau
Date of publication: 05.08.2026
Table of Contents
A Federal Court Ruling May Entitle You to a Refund of COVID-Era Tax Penalties
A recent decision by the U.S. Court has raised the possibility that millions of taxpayers were improperly charged penalties and interest during the pandemic period — and that a deadline to file a refund claim is fast approaching.
Time-Sensitive Notice
The deadline to file a refund claim is approximately July 10, 2026, for most taxpayers. This deadline is statutory and cannot be extended.
Claim Filing Deadline
~July 10, 2026
For most taxpayers
Disaster Period Covered
Jan 20, 2020 – Jul 10, 2023
COVID-19 federal disaster declaration + 60 days
Background — The Kwong Decision
In late 2025, U.S. Court issued a significant ruling in Kwong v. United States. The court interpreted a provision of the tax code to hold that federal tax filing and payment deadlines were automatically postponed during the entire COVID-19 federally declared disaster period.
That period began on January 20, 2020, and ran through May 11, 2023. Adding the statutory 60-day extension brings the effective end of the postponement period to approximately July 10, 2023. Under the court’s reasoning, any tax obligation that came due between those dates was not legally late — and penalties or interest charged for those obligations should not have been assessed.
A companion decision by the U.S. Tax Court, Abdo v. Commissioner, applied related reasoning and has been cited alongside Kwong as additional judicial support for this relief.
Ruling
Kwong v. United States U.S. Court of Federal Claims, Nov. 2025
Statute
IRC §7508A(d) Disaster relief — mandatory deadline postponement
Companion Case
Abdo v. Commissioner U.S. Tax Court — related reasoning
What This Means for Taxpayers
If you paid penalties or interest to the IRS for tax obligations that were due during the January 20, 2020 – July 10, 2023 window, you may have grounds to seek a refund or abatement of those amounts. This potentially includes:
- Failure-to-file penalties assessed on individual or business returns
- Failure-to-pay penalties on income taxes due during the period
- Estimated tax underpayment penalties
- IRS interest that accrued in connection with the above penalties
Because COVID-19 was declared a nationwide federal disaster, the geographic limitation that typically applies to disaster relief does not restrict this opportunity. Taxpayers across all 50 states may potentially be affected.
What Is Not Certain
This ruling is not final. The federal government has opposed the court’s interpretation, and an appeal to the Federal Circuit is anticipated. The IRS has not acquiesced to the decision and will not automatically refund these amounts.
What that means in practice is that simply waiting is not sufficient. If the ruling is ultimately upheld by a higher court and you have not filed a formal refund claim before the applicable deadline, your right to a refund will likely be permanently extinguished.
Filing a claim is not a guarantee of a refund. It is a preservation of your rights while the legal question is resolved. If you do not file and the ruling is ultimately upheld, no recovery will be possible.
Why a Protective Claim Matters
The appropriate response to legal uncertainty of this kind is a protective claim for refund. A protective claim is a formal filing that preserves a taxpayer’s refund rights while the underlying legal question is resolved — without requiring a final determination of the exact amount owed at the time of filing.
Who Should Consider Filing
Based on the court’s reasoning and practitioner analysis, the following taxpayer categories warrant a review of their IRS penalty and interest history:
- Individual filers (Form 1040) who paid late filing or late payment penalties for tax years 2019 through 2022
- Individual filers who paid estimated tax underpayment penalties during the affected period
- C-Corporations, S-Corporations, and Partnerships (Forms 1120, 1120-S, 1065) with IRS penalties or interest assessed during the disaster window
- Fiduciary and estate filers (Form 1041) with similar penalty history
- Any taxpayer who received IRS notices assessing penalties or interest for obligations due during the January 2020 – July 2023 period
Eligibility depends on the specific facts of each taxpayer’s situation — the type of penalty assessed, the tax period involved, the applicable filing and payment dates, and the documentation available to support the claim. A professional review is required before any claim is filed.
The Deadline — and Why It Is Firm
A taxpayer generally has three years from the filing of a return — or two years from the date of payment, whichever is later — to file a refund claim. Kwong’s ruling established that for tax obligations falling within the disaster period, the effective due date was extended to approximately July 10, 2023. Counting three years forward from that date produces a claim filing deadline of approximately July 10, 2026.
This is a statutory deadline. It is not subject to extension by the IRS or by the courts. The National Taxpayer Advocate has specifically flagged this deadline in published guidance, urging taxpayers not to wait for automatic relief — because none is forthcoming.
How Evans Sternau CPA Can Help
We are actively reviewing client tax histories to identify those who may be affected by this ruling. Our process includes a review of filed returns, IRS account transcripts, and relevant IRS notices to determine whether a protective claim is warranted and, if so, to prepare and file it on your behalf.
Our role is to evaluate your specific situation, advise you on the merits and risks, prepare the appropriate claim documentation, and file by the applicable deadline. We will not overstate the likelihood of recovery — but we will ensure that if the law ultimately favors taxpayers, your rights are preserved.
If you believe you may have paid IRS penalties or interest during the COVID-19 period and have not yet heard from us directly, we encourage you to reach out.
Speak with a member of our team.
We are reviewing client records now. The earlier you contact us, the more time we have to prepare your claim properly before the July 2026 deadline.
Contact Us at 832-482-4240 | info@es.cpa | es.cpa
FAQ
- Q1: Does this ruling mean I automatically get a refund?
A: No. The IRS will not issue refunds automatically. You must file a formal claim before the deadline — approximately July 10, 2026. Whether you ultimately receive a refund depends on the outcome of ongoing litigation and the specific facts of your situation.
- Q2: What if I'm not sure whether I paid penalties or interest during this period?
A: That's exactly what we review as part of our process. We pull your IRS account transcripts and any relevant notices to confirm whether penalties or interest were assessed and, if so, whether they fall within the affected period. You don't need to know the answer before reaching out.
- Q3: If the government is expected to appeal, why file now?
A: Because the filing deadline doesn't wait for the appeal to conclude. If you wait for a final ruling and the deadline passes, your right to a refund is likely gone — even if the ruling ultimately goes in taxpayers' favor. Filing a protective claim now costs you nothing except professional fees, and it preserves your rights regardless of how the litigation unfolds.
- Q4: Does this apply to my business as well as my personal return?
A: Potentially, yes. The ruling applies broadly to federal tax obligations — including those of corporations, partnerships, and other entities — that came due during the disaster window. If your business was assessed penalties or interest during that period, a separate review is warranted.
❗Important Notice
This article is provided for informational purposes only and does not constitute legal or tax advice. The Kwong v. United States ruling is subject to appeal and has not been acquiesced to by the IRS. No refund is guaranteed. Individual eligibility depends on the specific facts and circumstances of each taxpayer’s situation. Please consult with a qualified tax professional before taking any action. Evans Sternau CPA is not responsible for any actions taken in reliance on this article without professional consultation.
Meet Your Hospitality CPA
CHAD EVANS
Managing Partner
Chad Evans, Co-Founder of Evans Sternau CPA, is a seasoned expert in financial analysis and operational management. His focus is on developing client-first strategies for various sectors, including Leisure & Hospitality, Oil & Gas, Healthcare, Financial Services and more.
CHRIS STERNAU
Managing Partner
Chris Sternau, Co-Founder of Evans Sternau CPA, is a Certified Public Accountant (CPA) and Certified Financial Planner (CFP®). He specializes in comprehensive tax, financial, and estate planning services for high-net-worth families and businesses across industries like Real Estate, Oil & Gas, Technology and more.
Related Tips & Topics
