A taxpayer who filed a late 2021 return on a $15,000 balance could have been hit with more than $4,000 in combined IRS penalties. If a federal court ruling from 2024 holds up, that money never should have been charged, and the taxpayer can ask for it back. But the clock is running out: the window to file a refund claim closes around July 10, 2026, and the only way to preserve your rights is to mail a paper form to the IRS before that date. After that, the money is almost certainly gone for good.
The potential refunds trace back to a decision by the U.S. Court of Federal Claims that found the IRS miscalculated penalty deadlines during the COVID-19 disaster period. As of late May 2026, the agency has not said publicly whether it will honor claims based on that ruling, leaving millions of taxpayers in limbo. The Taxpayer Advocate Service (TAS), an independent watchdog inside the IRS, is now urging people to act before time runs out.
Two types of pandemic penalty relief (and why the difference matters)
There are two separate tracks of penalty relief connected to the pandemic. Mixing them up could cost you real money.
The first is an automatic IRS program that waived failure-to-pay penalties on certain 2020 and 2021 tax balances under $100,000. The IRS described this relief in a public announcement, and eligible accounts received credits without any action from taxpayers. That program is separate from what follows and does not depend on any court decision.
The second, broader form of relief comes from a ruling in Kwong v. United States (Case No. 1:23-cv-00267), decided by Judge Kathryn C. Davis in 2024. The court interpreted Section 7508A of the Internal Revenue Code to mean that tax deadlines were automatically postponed for the entire federally declared COVID disaster period, running from January 20, 2020, through May 11, 2023, plus an additional 60 days after the disaster ended.
If that interpretation holds, many penalties the IRS assessed during that window were improper because taxpayers had not actually missed a legal deadline. Anyone who paid late-filing or late-payment penalties tied to due dates falling within the disaster period could have grounds to request a refund of those penalties, plus any interest the IRS collected on them.
Why the IRS sees it differently
During the pandemic, the IRS took a narrower approach. Rather than declaring a blanket suspension of all deadlines for the full disaster period, the agency issued targeted postponements tied to specific due dates. The April 15, 2020, filing and payment deadline was pushed to July 15, 2020. Certain 2021 deadlines were moved to May 17, 2021. Each extension applied to particular taxpayer categories and particular obligations.
The IRS relied on Treasury regulations that give the agency discretion to define which deadlines are postponed and for how long. The Kwong opinion directly rejected that framework, concluding that Congress itself fixed the postponement period for federally declared disasters and that the IRS lacked authority to shorten or segment it through regulation.
That disagreement remains unresolved. The Kwong decision came from a single trial-level court, not a circuit court of appeals or the Supreme Court. The government could appeal, other courts could reach different conclusions, and the IRS could issue new regulations or guidance attempting to distinguish the case. None of that has happened yet.
The July 2026 deadline and what to do about it
Refund claims are subject to strict statutes of limitations, typically tied to the date a return was filed or a payment was made. In a May 2026 blog post, the Taxpayer Advocate Service flagged July 10, 2026, as a critical cutoff for many COVID-period penalty refund claims. That date is the TAS’s own calculation based on the disaster timeline and existing limitation rules; the IRS has not confirmed or endorsed it. Missing the date could permanently bar recovery, even if courts later confirm the penalties should never have been assessed.
As of the TAS’s May 2026 post, the IRS had not published official guidance responding to the Kwong ruling or told filers whether it will honor claims based on the court’s broader reading. Taxpayers are forced to make a decision with incomplete information.
The Taxpayer Advocate Service recommends filing either a formal claim for refund or a protective claim that preserves your position while the legal questions play out. A protective claim is a tool tax professionals use when a significant legal issue is unresolved but a limitation period is about to expire. It identifies the tax year, the type of tax, and the nature of the dispute, and explains that the refund amount depends on the outcome of pending litigation or guidance.
For individuals, this generally means filing IRS Form 843 (Claim for Refund and Request for Abatement) or an amended return on Form 1040-X. Form 843 is a single-page document available for free on IRS.gov. Form 843 must be submitted on paper by mail. Form 1040-X can be e-filed in some situations, but for protective claims tied to unresolved legal disputes like this one, the TAS recommends paper filing to ensure the claim is clearly documented. Tax professionals recommend sending it via certified mail or an IRS-approved private delivery service so you have proof it was postmarked before the deadline.
Who should consider filing
This potential relief applies to federal tax penalties only, not state taxes. It also does not cover estimated tax penalties, which are governed by a different section of the tax code (IRC §6654) and were not at issue in Kwong. You may want to file a protective claim if you meet all of the following:
- You paid IRS late-filing penalties (failure to file) or late-payment penalties (failure to pay) for tax years with deadlines that fell between January 20, 2020, and July 10, 2023 (the end of the disaster period plus 60 days).
- Those penalties were not already waived or credited under the IRS’s automatic relief program for balances under $100,000.
- You have not already received a refund for those specific penalties.
The dollar amounts at stake vary widely. Under IRC §6651, the IRS charges a failure-to-file penalty of up to 25% of unpaid tax and a failure-to-pay penalty of 0.5% per month, also capped at 25%. For a taxpayer who owed $15,000 and filed 10 months late, the failure-to-file penalty alone could reach $3,750, with hundreds more in failure-to-pay charges and interest stacked on top. For small businesses or taxpayers with larger balances, the totals can run well into five figures.
How to protect your claim before mid-July 2026
Filing a protective claim does not guarantee a refund. It keeps the door open. If the Kwong interpretation is ultimately upheld or the IRS issues favorable guidance, your claim will be in the system. If the ruling is overturned or narrowed, you lose nothing beyond the cost of postage and paperwork.
One realistic possibility: the IRS sits on these claims for months or even years while the legal landscape develops. Protective claims are designed for exactly that scenario. The IRS is not required to process them on any particular timeline, but your filing date locks in your right to a refund if the law eventually breaks your way.
For taxpayers unsure whether they qualify or how to structure the claim, consulting a tax professional before the deadline is worth the cost. The Taxpayer Advocate Service also operates a case assistance program for filers experiencing hardship or unable to resolve issues through normal IRS channels.
If you paid IRS penalties during the pandemic and want any chance of getting that money back, a paper claim needs to be in the mail before mid-July 2026. Waiting for the IRS to tell you what to do is the one move most likely to cost you.
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.
