Millions of taxpayers who paid failure-to-pay penalties on returns due between 2020 and 2023 have until July 10, 2026, to file claims that could recover those charges. The deadline traces back to a Court of Federal Claims ruling in the case known as Kwong, which found that the entire COVID-19 disaster period, running from January 20, 2020, through July 10, 2023, must be treated as a disregarded window under federal tax law. That interpretation means returns and payments due during those years were not technically late until after the disaster window closed, and penalties assessed during that stretch may have been collected in error.
A court ruling that resets the penalty clock for three years of tax returns
The core issue is a provision in the federal tax code, Section 7508A(d), which grants the IRS authority to postpone certain deadlines by reason of a federally declared disaster, plus an additional 60 days. When the COVID-19 national emergency was declared, the IRS used that authority to extend filing and payment deadlines. But the Court of Federal Claims went further in Kwong, interpreting the statute to require that the entire period from January 20, 2020, through July 10, 2023, be “disregarded” when determining whether a taxpayer acted on time.
The practical effect is significant. Under Kwong’s reasoning, a taxpayer who filed a 2020 or 2021 return months after the original due date, and then paid a failure-to-pay penalty, may not have owed that penalty at all. The IRS Taxpayer Advocate Service has stated that, under this interpretation, returns and payments due during the COVID disaster window were not late until after July 10, 2023. That reframing turns what the IRS treated as delinquent filings into timely ones, and the penalties collected on those filings into potential refunds.
This is separate from a relief program the IRS already announced covering certain 2020 and 2021 returns. That earlier program provided automatic failure-to-pay penalty relief only when the tax assessed was less than $100,000 and the taxpayer had received a CP14 or CP161 notice during a specific window. Taxpayers whose assessments exceeded that threshold, or whose returns fell in tax years 2022 and beyond, were left out of the automatic program entirely. For them, the Kwong decision and the extended claim deadline may represent the only realistic path to a refund.
Why the July 10 deadline forces a decision now
The Kwong ruling did not just open the door to penalty refunds. It also shifted the lookback period that determines how far back a taxpayer can reach when claiming a refund. The Taxpayer Advocate Service has warned that the disregarded-period rule under Section 7508A(d) extends the statutory window for filing refund claims, but only if taxpayers act before the adjusted deadline expires. For penalties paid during the COVID disaster period, that adjusted deadline falls on July 10, 2026, just 29 days from now.
Missing that date could permanently close the window. Federal tax law generally limits refund claims to three years from the date a return was filed or two years from the date the tax was paid, whichever is later. The Kwong interpretation effectively pauses that clock during the disaster period, but once the adjusted deadline passes, the right to claim a refund disappears regardless of whether the penalty was wrongly assessed. In other words, the legal theory that could support a refund remains, but the procedural right to ask for it expires.
The Taxpayer Advocate Service has urged affected taxpayers to file either a formal or protective claim for refund before the deadline. A protective claim preserves the taxpayer’s rights even if the IRS has not yet decided how broadly to apply the Kwong reasoning. Taxpayers who wait for the agency to expand its automatic relief program risk discovering that the statutory window has already closed by the time any broader policy takes effect. Filing a claim now creates an administrative record that the IRS must process, whether or not the agency agrees with the Kwong theory in every case.
For those who need to act, the IRS accepts refund and abatement requests on Form 843 when relief cannot be handled by phone. Taxpayers should reference the specific penalty, the tax year, and the Kwong decision in their filing. The form can be mailed to the IRS service center that handles the taxpayer’s return type, and taxpayers should keep copies of everything submitted, including any supporting notices or account transcripts.
Open questions the IRS has not yet answered about Kwong refunds
The biggest unresolved issue is whether the IRS will accept the Kwong interpretation as binding beyond the specific facts of that case. The Court of Federal Claims issued its ruling, but the agency has not published formal guidance stating that it will apply the disregarded-period logic to all penalty refund claims filed under Section 7508A(d). The Taxpayer Advocate Service, which operates independently within the IRS, has publicly encouraged taxpayers to file protective claims, but it cannot force the agency to adopt a particular legal position.
Another open question is how far the Kwong reasoning might extend beyond penalties. The Taxpayer Advocate has noted that the same disregarded-period concept could affect taxpayers who missed out on refunds entirely because they failed to file within the usual three-year period. In a separate analysis of missed refund opportunities, the office has explained how Kwong may interact with the standard refund statute of limitations and potentially reopen claims for taxpayers who thought they were out of time to recover overpayments. That broader perspective is reflected in the Advocate’s discussion of missed tax refunds tied to the COVID disaster period.
For now, the IRS has left taxpayers and practitioners to navigate these questions without a comprehensive policy statement. The agency could ultimately issue guidance narrowing the application of Kwong, contesting the Court of Federal Claims’ interpretation, or limiting relief to certain types of liabilities. It could also decide to provide broader automatic relief, similar to its earlier penalty waiver program, which would reduce the need for individual claims but might not reach every affected taxpayer.
In the absence of clear direction, the Taxpayer Advocate Service has emphasized the importance of preserving rights first and sorting out legal nuances later. Taxpayers who believe they may have paid failure-to-pay penalties, interest, or other amounts that were not truly owed during the COVID disaster period are being urged to document those payments and file timely claims. Even if the IRS ultimately rejects some claims, having a request on file before July 10, 2026, is the only way to ensure the issue can be considered at all.
Practical steps for taxpayers and advisors
Taxpayers and advisors who want to assess potential claims should start by reviewing account transcripts and prior-year notices for tax years 2019 through 2022, focusing on penalties and interest tied to late payment. Identifying when those amounts were assessed and paid is essential to understanding whether they fall within the COVID disaster window and the extended lookback period. Where records are incomplete, taxpayers can request transcripts from the IRS to reconstruct their accounts.
Once potential penalties are identified, the next step is determining how to frame the claim. A formal claim on Form 843 should clearly state that it seeks abatement or refund of failure-to-pay penalties (and any associated interest) based on the disregarded-period rules applicable to the COVID disaster. Taxpayers should briefly explain that, under Kwong and Section 7508A(d), the relevant period from January 20, 2020, through July 10, 2023, must be excluded when determining whether a payment was late.
For protective claims, the explanation can be more concise but should still specify the tax years, types of penalties, and legal basis. Taxpayers may wish to note that the claim is being filed to preserve rights pending further IRS guidance or judicial resolution regarding the application of Kwong. Attaching copies of IRS notices showing the penalties and dates of assessment can help the agency process the claim more efficiently.
Advisors should also consider how Kwong interacts with other forms of relief. Some taxpayers may already have received partial penalty abatements under the IRS’s earlier automatic program, leaving only a portion of the original failure-to-pay charges in dispute. Others may have entered into installment agreements or other arrangements that bundled penalties and interest into monthly payments. Carefully tracing which amounts were actually paid during the disaster period will be important for calculating the potential refund.
Ultimately, the combination of an expanded legal theory, an extended but finite deadline, and uncertain IRS policy puts the burden on taxpayers to act. The July 10, 2026, cutoff is not a soft target; it represents the point after which even well-founded claims may be barred as untimely. For those who paid penalties on returns due between 2020 and 2023, the coming weeks are an opportunity to revisit those years, evaluate whether Kwong might apply, and, if so, file the claims that could keep their refund rights alive.
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.
