We would like to bring to your attention a recent federal court decision, Kwong v. United States, which may create a limited opportunity for certain taxpayers to seek refunds of significant IRS penalties and interest assessed during the COVID‑19 pandemic.
What the Kwong v. United States Ruling Means for Taxpayers
Internal Revenue Code Section (IRC) 7508A(d) provides an automatic 60-day postponement of federal tax filing and payment deadlines in the case of a federally declared disaster.
In Kwong, the U.S. Court of Federal Claims ruled that IRC 7508A(d) should have applied to the COVID-19 pandemic, as it was a federally declared disaster.
Therefore, the court’s interpretation suggests that certain penalties and interest assessed during the COVID-19 pandemic may not have been properly imposed.
Who Qualifies for a COVID IRS Penalty Refund
This issue may apply broadly across taxpayers, including individuals, businesses, trusts, and estates.
Taxpayers with filing or payment obligations originally due between January 20, 2020, and July 10, 2023, should consider whether they were assessed penalties or interest during this period.
Time Sensitive Action Required
- The IRS will not automatically issue refunds. Taxpayers must file a claim before the deadline
- For most taxpayers, the deadline to preserve potential refund claims is July 10, 2026. However, the actual date will vary based on your specific tax situation.
Key Facts Before Filing a Protective Refund Claim
- Filing a claim does not guarantee a refund. The decision is expected to be appealed, and the ultimate outcome will depend on future judicial developments.
- Additional filings may be required in the future.
- A separate claim is required for each affected tax year.
- Supporting documentation, including IRS account transcripts, is typically necessary to evaluate and substantiate any claim.
Talk to a BRC Tax Advisor About Your COVID Penalty Refund Options
We are not able to identify all situations in which a client may want to consider filing a protective refund claim; therefore, clients who incurred significant penalties and interest on tax filings or payments originally due between January 20, 2020, and July 10, 2023, may wish to contact their BRC tax advisor to discuss whether further analysis is warranted.