Millions of Americans who paid late-filing or late-payment penalties on federal tax returns between 2020 and 2023 face a hard deadline of July 10, 2026, to claim refunds they may be owed. The National Taxpayer Advocate has warned that taxpayers who fail to act before that date will permanently lose the right to recover those penalty payments. A federal court ruling and a new law signed in late 2025 have combined to create a narrow window that extends well beyond the IRS’s earlier automatic relief program, but the clock is running out.
A court ruling and a new law opened the door
The refund opportunity traces back to the IRS’s decision during the COVID-19 pandemic to declare a nationwide disaster period that postponed various filing and payment deadlines. When the agency later assessed failure-to-pay penalties on taxpayers who still carried balances for tax years 2020 and 2021, it also announced automatic relief and issued refunds or credits to those who had already paid. That relief, formalized through Notice 2023-21 in Internal Revenue Bulletin 2023-11, covered a specific subset of filers. But it did not reach everyone.
The legal theory now driving broader refund claims stems from the Kwong decision, a case decided by the U.S. Court of Federal Claims on Nov. 25, 2025. That opinion interpreted how COVID-era disaster postponements interact with the statutory time limits for seeking refunds. According to the National Taxpayer Advocate, the ruling supports the position that the COVID disaster period ran through July 10, 2023, and that the standard refund-claim deadlines under IRC Section 6511(a) should be measured from that extended endpoint. The practical result: a three-year lookback from July 10, 2023, sets July 10, 2026, as the final date to preserve refund rights for penalties paid during the pandemic period.
Separately, the Disaster Related Extension of Deadlines Act, designated H.R. 1491, was signed into law on Dec. 26, 2025. That legislation further shapes how disaster-related postponement periods are calculated for tax purposes, adding another layer to the legal framework that practitioners and the Taxpayer Advocate Service are relying on when advising filers to act before the July 10 cutoff.
What is verified so far
Several facts are well established. The IRS did provide automatic failure-to-pay penalty relief for certain 2020 and 2021 balance-due returns. Notice 2023-21 was published in the Internal Revenue Bulletin. The Kwong opinion was issued by a federal court. And the Taxpayer Advocate Service has warned that taxpayers must file refund or protective claims by July 10, 2026, to preserve their rights. The required vehicle for a protective claim is Form 843, which must be specifically labeled as a protective claim for refund.
The distinction between the earlier IRS automatic relief and the current opportunity matters. The automatic program applied only to certain 2020 and 2021 penalties and required no action from taxpayers. The broader theory flowing from the Kwong decision, according to the Taxpayer Advocate, could reach penalties paid across a wider range of returns and tax years within the disaster period, including 2022 and 2023 in some cases. That is why the Advocate has urged filers who paid any penalties during the relevant window to evaluate whether they qualify.
In practical terms, taxpayers who already received automatic credits or refunds under Notice 2023-21 may still want to review their accounts to confirm that all eligible penalties were covered. Those who never received automatic relief, or who paid penalties tied to returns filed after the IRS’s original cutoff dates, may have the most at stake. The Advocate’s office has emphasized that even taxpayers who are unsure whether they ultimately qualify can file a protective claim now to keep their options open while the legal landscape continues to develop.
What remains uncertain
The exact scope of who benefits is not fully settled. The Taxpayer Advocate has noted that the refund-claim deadline is treated as July 10, 2026, “under the Kwong theory,” language that signals this interpretation has not been universally adopted by the IRS or tested in additional court proceedings beyond the original case. The IRS has not published updated processing statistics or denial rates for protective Form 843 claims filed under the COVID disaster extension, so there is no public data on how the agency is handling these filings in practice.
A technical tension also exists within the refund rules themselves. According to the Taxpayer Advocate’s analysis, refund claims can be governed by either a three-year rule under IRC Section 6511(a) or a two-year rule measured from the date of payment. How those overlapping time limits apply when a disaster postponement extends filing and payment deadlines has been a central point of dispute. Kwong adopted one reading that is favorable to taxpayers, but until additional courts weigh in or the IRS issues more detailed guidance, there is no absolute guarantee that every claim filed by July 10, 2026, will be honored.
There are also open questions about which specific penalties are covered. The Advocate has focused on failure-to-pay and failure-to-file charges linked to returns whose deadlines fell within the COVID disaster period. But some taxpayers incurred penalties on amended returns, installment agreement payments, or other post-filing events. Whether those assessments qualify under the same disaster-based extension rules may depend on individualized facts, including when the underlying liability arose and when each payment was made.
Tax professionals are watching for signs of how the IRS Office of Chief Counsel will interpret Kwong in internal advice and litigation positions. If the agency chooses to distinguish the case on narrow grounds, some taxpayers could see their claims denied even if they filed by the July deadline. Conversely, if the IRS accepts the broader reading urged by the Advocate, the potential pool of eligible refunds could encompass tens of millions of accounts nationwide.
How to protect your rights before the deadline
Despite the uncertainties, the action steps for taxpayers are relatively clear. Anyone who paid IRS late-filing or late-payment penalties tied to 2020–2023 returns should first gather account transcripts and prior notices to identify which amounts were labeled as penalties and when they were paid. With that information, they can work with a tax professional or use IRS instructions to determine whether a formal refund claim is appropriate or whether a protective claim is more suitable while legal questions remain unresolved.
Form 843 is the primary tool for both types of claims in this context. To serve as a protective claim, the form must clearly state that it is being filed to preserve the taxpayer’s right to a refund of COVID-era penalties pending final resolution of the legal issues surrounding disaster postponements and the Kwong ruling. The Taxpayer Advocate has advised that taxpayers should reference the relevant tax years, identify the penalties at issue as precisely as possible, and mail the form using a method that provides proof of timely filing.
Taxpayers who are currently in installment agreements or other collection arrangements should pay particular attention, because ongoing payments may still be applied in part to penalty balances. Filing a claim does not automatically stop collection, but it can ensure that any amounts ultimately determined to be refundable are not barred by the statute of limitations. Low-income filers and those with limited English proficiency may also be able to seek free assistance from Low Income Taxpayer Clinics or other nonprofit organizations familiar with disaster-related tax relief.
For now, the central message from the Advocate’s office is that inaction carries the greatest risk. The July 10, 2026, date functions as a hard stop for most potential claims linked to the COVID disaster period, at least under the favorable interpretation currently available. Taxpayers who wait for complete certainty from the courts or the IRS may find that, by the time definitive guidance arrives, the window to claim their own refunds has already closed.
With only a limited time left, taxpayers who suspect they paid qualifying penalties should move quickly to document their accounts, consult reliable guidance, and, if appropriate, file Form 843 as a formal or protective claim. The combination of a unique disaster period, a pivotal court ruling, and a targeted statute has created an unusual second chance to recover money that might otherwise be lost forever. Whether that opportunity translates into actual refunds will depend not only on future legal developments, but also on how many taxpayers take the necessary steps before the deadline passes.
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.
