Taxpayers who paid penalties on late-filed returns for tax years 2020 through 2023 have until July 10, 2026, to file protective refund claims with the IRS, a deadline tied to a federal court ruling that interpreted COVID-19 disaster relief provisions far more broadly than the agency itself has acknowledged. The clock is ticking: only 29 days remain for affected filers to act, and the IRS has not issued direct guidance responding to the court’s reasoning.
A federal court ruling created a refund path the IRS disputes
The U.S. Court of Federal Claims, in the case of Kwong v. USA, held that IRC Section 7508A(d) triggers an automatic, mandatory postponement window for certain time-sensitive tax acts during the COVID-19 federally declared disaster, plus 60 days. That interpretation means taxpayers who filed returns late during the pandemic period and paid failure-to-file or failure-to-pay penalties may have been penalized for actions that fell within a legally extended deadline they never knew existed.
The July 10, 2026, protective-claim deadline derives from a three-year lookback: three years from July 10, 2023, which the Kwong reasoning identifies as a key date under the Section 7508A(d) postponement framework. According to the Taxpayer Advocate Service, this relief is not automatic. Taxpayers must affirmatively file a claim to preserve their rights, even if the legal question remains unresolved and the IRS continues to disagree with the courts.
This situation is distinct from the IRS’s own earlier penalty relief program. In January 2023, the agency announced automatic penalty waivers for certain businesses and tax-exempt organizations that filed late for 2020 and 2021. That program was the IRS’s initiative, applied systemically, and required no action from affected taxpayers. The current refund opportunity, by contrast, flows from a court decision the IRS actively contests, and it requires individual filers to submit paperwork before the statute of limitations expires.
The IRS disagrees, and the legal conflict is unresolved
The IRS has publicly stated its disagreement with the reasoning behind related court holdings. In Internal Revenue Bulletin 2026-23, the agency said it disagrees with the Tax Court’s holding on regulatory ambiguity and trigger language in a separate but related case called Abdo. The IRS relies on its own Treasury regulation, 26 CFR Section 301.7508A-1, which takes a narrower view of when and how disaster postponements apply. Under that regulation, the IRS generally must specify the relief in a notice before taxpayers can claim extended deadlines.
The statute itself, Section 7508A, includes a subsection titled “Mandatory 60-day extension” that courts like the one in Kwong have read as self-executing, meaning it applies automatically by operation of law regardless of whether the IRS issues a specific notice. That gap between the statutory text and the IRS regulation has produced a direct conflict: taxpayers and some courts say the COVID-19 disaster declaration itself triggered extended due dates, while the IRS maintains that only expressly announced postponements count.
Because the government has not conceded the issue, the Kwong decision does not guarantee refunds for everyone who files a claim. Instead, it opens a potential path that could be affirmed or rejected in future litigation or guidance. Until the dispute is definitively resolved, taxpayers who might benefit are being urged to file timely protective claims so they do not lose their place in line if the broader interpretation ultimately prevails.
Who may be affected by the July 10, 2026 deadline
The taxpayers most likely to be impacted are individuals, small businesses, and self-employed filers who:
- Filed 2020–2023 federal income tax returns after the original or extended due date, and
- Incurred failure-to-file or failure-to-pay penalties related to those late filings, and
- Paid some or all of those penalties, either directly or through reduced refunds.
In addition, some taxpayers who entered into installment agreements or had penalties offset against later-year refunds may also fall within the potentially affected group. The key question is whether the filing or payment occurred during the COVID-19 disaster period in a way that, under the Kwong court’s reading, would have been timely because of the automatic postponement plus 60 days.
This relief is separate from standard penalty abatement options such as reasonable cause or first-time abatement. Taxpayers who already obtained those forms of relief may have little or no penalty left to recover, while those who were denied or never applied could still benefit from a successful disaster-relief claim.
How to file a protective refund claim
A protective claim is essentially a placeholder: it preserves a taxpayer’s right to a refund while the legal basis for that refund remains uncertain. To file one, taxpayers generally submit an amended return on Form 1040-X or the equivalent business form, clearly marking the filing as a “Protective Claim for Refund.” The claim should identify the tax year, the type and amount of penalty at issue, and a brief explanation referencing Section 7508A(d), the COVID-19 federal disaster declaration, and the Kwong line of cases.
Taxpayers should keep copies of all submissions and consider using certified mail or another trackable method to document timely filing by July 10, 2026. Those with complex situations or large penalties at stake may wish to consult a qualified tax professional, particularly because the IRS has not adopted the court’s interpretation and may deny claims pending further guidance or litigation.
With the statute of limitations closing in, the decision comes down to risk management. Filing a carefully documented protective claim can preserve potential refunds tied to pandemic-era penalties, while waiting could permanently forfeit those rights if the broader interpretation of disaster relief is ultimately upheld.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
