A recent federal court decision in Kwong v. United States challenges the IRS’s authority to assess certain penalties and interest during the COVID‑19 disaster relief period (January 20, 2020 through July 10, 2023), concluding that affected filing and payment deadlines that fell within this period should have been uniformly postponed to July 10, 2023. If this decision ultimately stands, some penalties and interest previously assessed or paid related to that period may not have been owed. However, the case is likely to be appealed and could be overturned, and the IRS is not currently issuing refunds based on this ruling.
Because of the uncertainty that exists around how the courts will ultimately side on this issue and the fact that pursuing a refund and/or abatement of previously assessed penalties and/or interest would likely require navigating a potentially time‑consuming and costly process, this opportunity is generally only practical for taxpayers with significant penalty and interest amounts at stake. Strict statutes of limitation also apply, meaning, in some cases, the period to take action may have already expired and, in many cases, will expire July 10, 2026. Taxpayers with substantial penalties and/or interest related to this period should determine if they are still within the statute to take action and whether the potential (not guaranteed) benefits outweigh the associated costs.