Tens of millions of taxpayers who paid failure-to-file or failure-to-pay penalties on returns from 2020 through 2023 now have 32 days to claim refunds before a practical filing cutoff on July 10, 2026. The National Taxpayer Advocate flagged the deadline after a federal court ruling reinterpreted how the COVID-19 disaster period affects penalty assessments, opening a window that could dwarf the narrower automatic relief the IRS previously offered for 2020 and 2021 returns.
How a court ruling turned pandemic penalties into potential refunds
The clock is ticking because of a single legal question: did the federally declared COVID-19 disaster period pause the deadlines that trigger failure-to-file and failure-to-pay penalties? The U.S. Court of Federal Claims answered yes in Kwong v. United States, holding that IRC Section 7508A required the IRS to disregard certain time-sensitive acts during the disaster window. That interpretation goes well beyond what the IRS itself did when it announced automatic penalty relief limited to 2020 and 2021 tax years. Under the Kwong reading, penalties and interest assessed or paid during the entire COVID-19 federal disaster period could be refundable or abatable, covering returns through 2023.
The practical effect is straightforward: anyone who wrote a check to the IRS for late-filing or late-payment penalties during those years may be entitled to get that money back. In an April blog post, the National Taxpayer Advocate warned that tens of millions of taxpayers may be eligible for significant refunds if they act before July 10. That date functions as the outer boundary for filing many refund claims under the disaster-period theory, because statutory refund windows are measured from the original due date of the return, and the Kwong reasoning extends those windows only so far.
Existing IRS relief versus the broader Kwong theory
The IRS already granted limited penalty forgiveness through its own administrative action. In a 2023 announcement, the agency provided penalty relief for 2020 and 2021 tax returns, automatically waiving certain failure-to-pay charges for taxpayers who owed less than a specified threshold. That relief was welcome but narrow: it covered only two tax years and excluded many filers who had already paid their penalties in full.
The Kwong decision applies a different legal framework. Instead of discretionary IRS forgiveness, it relies on the mandatory postponement provision in 26 CFR Section 301.7508A-1, which implements the disaster-relief statute. The distinction matters because mandatory postponement does not depend on IRS generosity or income thresholds. If the deadline for filing a return or paying a tax was suspended, the associated penalties generally cannot start running until the postponed date, and amounts assessed earlier may have been improper.
Internal Revenue Manual guidance on interest and penalty relief describes how the agency normally administers disaster postponements. Kwong effectively argues that the COVID-19 emergency triggered those rules more broadly than the IRS acknowledged, which is why the potential universe of affected taxpayers extends beyond the group that received automatic relief.
Who may benefit from filing a claim
The Taxpayer Advocate’s office emphasizes that not everyone who paid penalties between 2020 and 2023 will be eligible for a refund. The key questions are whether the penalties relate to acts that fell within the federally declared disaster period, whether the IRS treated those acts as time-sensitive under Section 7508A, and whether the taxpayer is still within the statute of limitations to file a claim.
Still, the potential scope is enormous. Individuals, small business owners, and self-employed filers who were late on income tax, employment tax, or certain information returns during the pandemic years may all have paid penalties that are now open to challenge. Some taxpayers may also have missed out on refunds altogether because they filed late and were told the refund statute had expired. A May blog from the Taxpayer Advocate explores how missed tax refunds could be affected by the same disaster-period logic.
The July 10, 2026 practical deadline
Why July 10? Refund claims are generally limited to the later of three years from the time the return was filed or two years from the time the tax was paid. Kwong’s disaster-period interpretation effectively tacks extra time onto those windows, but only up to a point. For many 2020 returns filed by the original or extended due dates, the Taxpayer Advocate calculates that the last date to file a protective claim under the disaster theory will fall on or around July 10, 2026.
Because the IRS has not yet adopted Kwong nationwide, filing a timely claim is the only way to preserve rights if the decision is ultimately upheld or followed in other courts. Taxpayers who wait beyond the statutory deadline may lose any chance of a refund, even if the legal theory is later validated.
What taxpayers should consider doing now
Tax professionals are urging potentially affected clients to review their accounts for penalties and interest paid on 2020–2023 returns and to consider filing protective refund claims before the July cutoff. A protective claim does not require the taxpayer to prove the legal theory in detail; it simply keeps the year open while the courts and the IRS sort out the implications of Kwong.
For individuals who cannot easily reconstruct their accounts, obtaining IRS transcripts or working with a qualified tax advisor may be essential. The amounts at stake can be modest for some filers and substantial for others, but the looming deadline means that waiting for clearer guidance could be costly. Unless and until the IRS or Congress provides broader automatic relief, the burden will fall on taxpayers to act quickly if they hope to turn pandemic-era penalties into refunds.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
