Millions of Americans paid late-payment penalties on their federal taxes between 2020 and 2023. A federal court ruling and a new law now say many of those charges were wrong, and the IRS may owe that money back. But there is a hard deadline to claim it: July 10, 2026. After that date, the refund window closes permanently for most filers, no matter how strong their case.
The National Taxpayer Advocate raised the alarm in an April 2026 blog post, warning that tens of millions of taxpayers may be eligible for refunds or abatements of penalties and interest charged during the COVID-19 federal disaster period. The office did not mince words: “most taxpayers must file a claim for refund, generally by July 10, 2026.” That cutoff is not a guideline. It is a statutory limit set by lookback rules under Internal Revenue Code Section 6511, and missing it means forfeiting the claim entirely.
As of late May 2026, fewer than seven weeks remain.
A court ruled the IRS got the penalty math wrong
The story behind these refunds starts with a lawsuit. In November 2025, the U.S. Court of Federal Claims ruled in Kwong v. United States (Case No. 1:23-cv-00267) that the IRS had misapplied the disaster-postponement rules in Internal Revenue Code Section 7508A(d). That section governs how tax deadlines shift when the federal government declares a disaster, including the nationwide COVID-19 emergency declared in 2020.
The core of the ruling: when a disaster declaration pushed a filing or payment deadline forward, the IRS could not legally penalize taxpayers for using that extra time. Penalties tied to the original, pre-extension due dates were never properly authorized.
The practical reach is significant. Failure-to-pay penalties and the interest that accumulated on top of them during the 2020 through 2023 window could be invalid for a large number of individual and business filers. To put that in perspective, the IRS previously issued $1.2 billion in penalty refunds to roughly 1.6 million taxpayers for just two tax years (2019 and 2020) under a narrower administrative relief program. The universe of potentially affected filers under the Kwong reasoning is far larger.
Congress fixed a technical barrier that would have blocked many claims
Even after the Kwong decision, a catch remained. The IRS refund “lookback” window, which limits how far back you can reach when claiming a refund of amounts already paid, had not been adjusted to account for the disaster extensions. Some taxpayers who could prove their penalties were wrongly assessed still risked being told they had waited too long.
Congress addressed that gap with H.R. 1491, signed into law as Public Law 119-64 on December 26, 2025. The legislation aligned the lookback period with the extended disaster deadlines, preventing taxpayers from being penalized twice: once by an improper charge and again by a refund window that expired before they could act.
It is the combination of the court ruling and this legislative fix that produces the July 10, 2026, deadline for most affected filers.
The IRS has already refunded billions, but not everyone is covered
The IRS has run its own administrative relief programs separate from the litigation. The agency announced automatic penalty relief for certain business and tax-exempt filers for tax years 2020 and 2021, wiping out or reducing failure-to-pay charges without requiring those entities to file individual claims.
Those programs helped, but they leave gaps. The Taxpayer Advocate has cautioned that receiving automatic relief for one tax year does not mean you have been made whole for all years or all penalty categories. Interest charges layered on top of abated penalties, for example, may require a separate claim. And the court-driven refund theories under Section 7508A(d) reach situations the IRS’s administrative programs were never designed to cover.
In short: even if you received some automatic relief, you may still be owed additional money that requires a formal claim before July 10.
What is still uncertain
Several open questions hang over the process. Publicly available records do not clearly show whether the government appealed the Kwong decision after the November 2025 ruling, or whether any appellate court has weighed in. A reversal or narrowing of the opinion could affect how broadly taxpayers can rely on its reasoning. For now, the Taxpayer Advocate appears to treat the decision, paired with the legislative fix, as a significant basis for relief.
How consistently the IRS will process individual claims is another unknown. The agency is bound to follow controlling law, but it retains discretion in how it evaluates penalty abatement requests. Some filers may incorrectly assume they are ineligible because they already received automatic relief on one year. Others may assume every penalty assessed during the disaster period is automatically refundable, when the actual standards depend on the specific facts of each return.
One thing that is not uncertain: the deadline. Regardless of how the IRS ultimately handles each claim, a request filed after July 10, 2026, will almost certainly be rejected on timeliness grounds alone.
How to file your claim before July 10
The steps are more straightforward than the legal backdrop might suggest.
1. Check your IRS account transcripts. Log in to the IRS Online Account portal and pull your transcripts for tax years 2019 through 2023. Look for any assessed failure-to-pay penalties (often labeled “FTP” on transcripts) and related interest charges during the disaster period.
2. File IRS Form 843. Most individual taxpayers will need to submit Form 843 (Claim for Refund and Request for Abatement), specifying the penalty and interest amounts at issue and citing the disaster-postponement provisions. In some cases, an amended return may also be appropriate. The Taxpayer Advocate’s April 2026 guidance provides additional detail on which approach fits different situations.
3. Talk to your tax preparer if you use one. Taxpayers who relied on a paid preparer or enrolled agent for their returns during the affected years should contact that professional now. A preparer who is familiar with your filing history can help determine whether penalties were assessed, whether any automatic relief was already applied, and whether a Form 843 claim is warranted. Do not assume your preparer will file the claim on your behalf without being asked; the responsibility to act before July 10 remains with the taxpayer.
4. Get free help if you need it. Taxpayers who cannot afford professional assistance should know that the IRS funds Low Income Taxpayer Clinics across the country. The Taxpayer Advocate Service itself can also assist filers experiencing hardship or those who cannot resolve their cases through normal IRS channels.
One important note: this relief applies to federal tax penalties. State tax penalties operate under separate rules and timelines, so filers who also paid state-level late penalties should check with their state tax agency independently.
Why waiting is the worst option for penalty refund claims
Filing a timely claim does not guarantee a refund. The IRS will still evaluate each request on its merits. But letting the July 10, 2026, deadline pass almost certainly guarantees you will never see the money, regardless of whether the penalty was valid.
This is not a situation where procrastination costs you a small convenience. For some filers, the penalties and interest at stake run into thousands of dollars. The Taxpayer Advocate’s office has described this as one of the most significant pandemic-era tax correction opportunities still available, and the clock on it is now measured in weeks, not months.
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.
