Tens of millions of Americans who paid late-filing or late-payment penalties to the IRS between 2020 and 2023 may be entitled to get that money back, according to the National Taxpayer Advocate. But the window to act is closing fast. July 10, 2026, is the general deadline for filing a refund claim, and once it passes, the right to recover those dollars vanishes permanently.
The refunds trace back to a legal wrinkle most people never heard about. When the federal government declared COVID-19 a national disaster, it triggered automatic postponements of certain tax deadlines under 26 CFR 301.7508A-1, the IRS regulation governing disaster relief. Those postponements may have pushed filing and payment due dates further than most taxpayers realized. If a deadline was actually extended and you were penalized for missing the original date, the penalty may have been assessed in error.
The amounts at stake are not trivial. A failure-to-file penalty alone runs 5% of unpaid tax per month, capping at 25% of the balance. Someone who owed $10,000 and filed six months late would have been hit with $2,500 in penalties before interest even started accruing. Multiply that across millions of filers who struggled to meet deadlines during the pandemic, and the total runs into the billions.
Why the COVID disaster declaration created this problem
Under normal circumstances, a federally declared disaster triggers a postponement period of at least 60 days and no more than one year for affected tax deadlines. Hurricanes, wildfires, and floods follow a predictable pattern: the disaster has a start date and an end date, and the IRS anchors the postponement to those boundaries.
COVID-19 broke that pattern. The pandemic had no single “incident date” and no clean endpoint. That ambiguity created an unusual situation under the disaster-relief regulation, because the one-year cap on postponements is normally measured from a defined incident period. With no firm end date, the postponement window may have stretched filing and payment deadlines well beyond what the IRS communicated in its initial notices.
The IRS’s own Internal Revenue Manual (IRM 25.6.1) includes instructions for adjusting deadlines and abating penalties when a disaster postponement period is in effect. While the IRM is an internal guidance document rather than binding law, it reinforces the argument that penalties assessed during an active disaster period should be reversed.
What the IRS has already done, and what it hasn’t
The IRS did provide some automatic relief. Under Notice 2022-36, the agency credited accounts and issued refunds totaling roughly $1.2 billion to about 1.6 million taxpayers without requiring individual claims. That program, however, was limited. It covered failure-to-file penalties on returns due between 2020 and 2021 and did not address failure-to-pay penalties or penalties tied to later tax years.
The broader refund opportunity now being highlighted by the Taxpayer Advocate goes further. It potentially covers failure-to-pay penalties, penalties on 2022 and 2023 returns, and the interest that accrued on top of them. But as of June 2026, the IRS has not issued formal guidance confirming it will honor claims on that wider basis. No published notice or regulation clarifies how the agency views the pandemic’s open-ended “incident period” for purposes of Section 7508A.
That silence does not prevent taxpayers from filing claims. It does mean some claims could be contested or denied. No court ruling has definitively settled the question either. The legal theory rests on the plain text of the disaster-relief statute and regulation, but it has not been tested in a final judicial decision covering the full range of tax years and penalty types at issue.
Where the July 10, 2026, deadline comes from
The IRS generally allows taxpayers to claim a refund within three years of filing a return or two years of paying the tax, whichever is later, as outlined on its refund-period guidance page. For returns filed and penalties paid during the early pandemic years, those limitation periods converge around mid-2026.
The Taxpayer Advocate has pointed to July 10, 2026, as the general outer boundary for most affected filers. Individual deadlines can vary depending on when a return was actually filed, when a penalty was paid, and whether extensions or installment agreements were involved. But for the largest group of taxpayers, July 10 is the critical date.
Once the statute of limitations expires, the IRS is legally barred from issuing a refund, even if the penalty was clearly wrong. There is no appeal and no exception.
How to file a claim before the deadline
Taxpayers who believe they paid penalties that should have been postponed under the COVID disaster rules have two main options: file an amended return (Form 1040-X for individuals) requesting a refund of the penalty and interest, or file Form 843, Claim for Refund and Request for Abatement. Either form should include a written explanation stating that the penalties were assessed during the COVID-19 disaster postponement period and should be abated under 26 CFR 301.7508A-1.
There is also a strategy called a “protective claim.” In plain terms, this is a formal refund request that preserves your right to a refund while the underlying legal question remains unresolved. You do not need the IRS to agree with your argument at the time you file. You simply need to get the claim on record before the statute of limitations closes. If the IRS or a court later confirms the theory, your claim is in the queue. If the theory is rejected, you lose nothing beyond the time it took to file.
One common concern: could filing a claim invite extra IRS scrutiny or trigger an audit? Tax practitioners say the risk is minimal. A refund claim for penalty abatement is a routine administrative request, not a red flag. The IRS processes millions of them.
To support a claim, gather the following:
- IRS notices showing when penalties were assessed and the amounts paid
- Records of your original filing dates and payment dates for the tax years in question (2020 through 2023)
- Copies of any correspondence with the IRS about the penalties
- A clear written statement explaining the basis for the refund request, citing the COVID-19 disaster declaration and 26 CFR 301.7508A-1
Most filers can prepare and submit Form 843 on their own, but anyone uncertain about the process or dealing with multiple tax years should consider professional help. Taxpayers who cannot afford a tax professional can contact a Low Income Taxpayer Clinic for free or low-cost assistance, or visit a local Taxpayer Assistance Center.
What this refund opportunity does not cover
This applies to federal penalties only. State tax agencies operate under their own rules, and most did not adopt the same open-ended disaster postponement framework. Taxpayers who paid state-level penalties should check with their state’s tax authority separately.
The refund theory also does not extend to penalties unrelated to filing or payment timing. Accuracy-related penalties for understating income, penalties for bounced checks, and other non-timing penalties fall outside this argument. The claim is specifically tied to the position that COVID disaster relief extended the deadlines for filing returns and paying tax, making time-based penalties invalid during the postponement window.
A low-cost claim with a hard expiration date
The legal questions surrounding this refund opportunity are real, and not every claim will be approved. But the cost of filing a protective claim is minimal: a form, a written explanation, and postage. The cost of doing nothing is potentially far higher. Once July 10 passes, taxpayers who were overcharged lose any ability to recover that money, regardless of what the IRS or the courts decide later.
For millions of people who scrambled to meet tax obligations during the most disruptive public health crisis in a century, this may be the last chance to recover penalties they never should have owed.
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.
