Millions of Americans paid federal tax penalties during the pandemic years without realizing the IRS may not have had the legal authority to charge them. Now, a court ruling and a ticking deadline have created a narrow window to claim that money back.
If you were hit with a failure-to-pay penalty on a federal return filed between 2020 and 2023, you may be entitled to a refund. But the IRS will not send it automatically. You need to file a protective refund claim on Form 843, and for most individual filers, the deadline is July 10, 2026.
The National Taxpayer Advocate, the IRS’s independent watchdog, has been raising the alarm since early 2026. In an April blog post, the Advocate estimated that tens of millions of individuals and businesses could be eligible for significant refunds or penalty waivers. Yet as of late May 2026, relatively few people appear to have taken action.
The court ruling behind the refund claims
The legal basis is a decision by the U.S. Court of Federal Claims in Kwong v. United States. The court found that the IRS improperly assessed certain failure-to-pay penalties during a period when the COVID-19 national emergency, a federally declared disaster, should have triggered automatic deadline extensions under 26 U.S.C. Section 7508A. That statute requires the government to postpone tax-related deadlines whenever a federal disaster declaration is in effect. A related Treasury regulation caps the mandatory postponement at one year, a detail central to the ongoing legal dispute.
Put simply: if the Kwong interpretation stands, the IRS had no legal basis to impose many of the failure-to-pay penalties it charged during the pandemic years. Taxpayers who already paid those penalties would be owed refunds. Those who still carry the balances could see them erased.
This is separate from an earlier IRS initiative that automatically waived certain failure-to-pay penalties on 2020 and 2021 returns. That narrower relief was applied by the agency on its own and required no action from taxpayers. The Kwong-based theory potentially covers a broader range of penalties and tax years, but it requires each taxpayer to take an affirmative step: filing Form 843 before the deadline. Even if you already received relief under the earlier automatic waiver, you may be eligible for additional refunds on penalties that program did not cover.
Why the outcome is still uncertain
The federal government has argued that the Kwong ruling was wrongly decided, and the case could face further appellate review. If a higher court reverses the decision, protective claims filed now would likely be denied.
That uncertainty is precisely why the Advocate recommends filing a “protective” claim rather than a standard refund request. A protective claim preserves your right to relief if the legal theory ultimately prevails, without forcing the IRS to process a refund immediately. Think of it as a placeholder: you are telling the IRS, “I believe I am owed this money, and here is why,” so that if the courts agree, you are already in line.
Several practical questions remain open. The IRS has not disclosed how many Form 843 protective claims it has received, the total dollar amount of penalties potentially affected, or how strictly it will evaluate claims for technical completeness. The agency also has not said whether filers will get a chance to correct minor errors after the deadline passes.
What a protective claim needs to include
In a May 2026 blog post, the National Taxpayer Advocate published a detailed, step-by-step walkthrough of the protective claim process. The key requirements:
- Identify the tax type and years. List each tax year (2020 through 2023, as applicable) and specify that the claim involves failure-to-pay penalties.
- State the legal basis. Reference the Kwong v. United States litigation and the disaster postponement provisions under 26 U.S.C. Section 7508A.
- Provide clear, definite notice. The claim must give the IRS enough detail to understand what you are requesting and why. Vague or generic language may not preserve your rights.
- File before July 10, 2026. For most individual filers, this is the statutory cutoff, driven by the three-year lookback rule under IRC Section 6511 and the July 10, 2023, end of the COVID national emergency postponement period. Some taxpayers whose penalties were assessed at later dates may have a different window, so checking your IRS account transcript is critical.
One important detail: Form 843 cannot be filed electronically. It must be submitted on paper by mail. To confirm whether you paid relevant penalties, request an account transcript for each tax year through your IRS online account or by mailing Form 4506-T. Look for transaction codes labeled as failure-to-pay penalties assessed between April 2020 and the end of the COVID disaster declaration period. If you are unsure how to read a transcript, a tax professional or a local Low Income Taxpayer Clinic can help at no or low cost.
How much money is at stake
The IRS has not published aggregate figures, and individual refund amounts will vary widely. Failure-to-pay penalties accrue at 0.5% of the unpaid tax balance per month, up to a maximum of 25% of the amount owed. For someone who carried a $10,000 balance for two years, the penalty alone could exceed $1,200. A taxpayer with a $50,000 unpaid balance over the same period could be looking at more than $6,000 in penalties. For businesses or higher-income filers with larger balances, the numbers climb fast.
The Advocate’s characterization of the potential relief as “significant” reflects the sheer volume of penalties the IRS assessed during the pandemic years, not a specific dollar estimate. During 2020 and 2021 alone, the IRS assessed tens of billions of dollars in civil penalties across all categories, according to IRS Data Book figures.
A step-by-step checklist before the July 10 deadline
Filing a protective claim costs nothing beyond the time to prepare it, and it keeps the door open if Kwong is ultimately affirmed or similar cases succeed. Ignoring the deadline could permanently forfeit any chance at relief, even if the law eventually sides with taxpayers.
Here is what to do:
- Pull your IRS account transcripts for tax years 2020 through 2023.
- Identify any failure-to-pay penalties and note the amounts and assessment dates.
- Download Form 843 from the IRS website.
- Complete the form, clearly referencing the COVID-19 federal disaster declaration, 26 U.S.C. Section 7508A, and the Kwong v. United States litigation as the basis for your claim.
- Mail the completed form to the IRS service center that handles your returns. Send it by certified mail with a return receipt so you have proof of the filing date.
- Keep copies of everything: the form, your transcripts, and the certified mail receipt.
If you are uncomfortable navigating this on your own, consult a tax professional or contact a Low Income Taxpayer Clinic for free or reduced-cost assistance. The Taxpayer Advocate Service can also be reached at 1-877-777-4778 for general guidance, though it cannot prepare claims on your behalf.
No one can guarantee these refunds will materialize. But with a hard deadline approaching in July 2026, the cost of filing a protective claim is a stamp and an envelope. The cost of missing it could be permanent.
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.
