At a Glance
A recent court ruling may create an opportunity for individuals and businesses to recover certain IRS penalties and interest assessed during the COVID-19 disaster period. To preserve that opportunity, taxpayers may need to file a protective claim by July 10, 2026.
A recent federal court decision, Kwong v. United States, could create a significant opportunity for individuals and businesses to recover IRS penalties and interest paid during the pandemic. However, the IRS will not issue these refunds automatically.
To safeguard your potential refund, a protective claim must be filed by July 10, 2026.
What Taxpayers Need to Know
During the COVID-19 federal disaster period, beginning January 20, 2020 through May 11, 2023, special rules postponed certain tax deadlines. In Kwong v. United States, the court ruled that the IRS should not have assessed late-filing, late-payment or estimated tax penalties, nor should it have charged interest on those balances during that 3.5 year time frame.
On May 15, 2026, the Department of Justice officially filed a Notice of Appeal and issued an Action on Decision (AOD). This signals that the IRS will not automatically extend this ruling to other taxpayers, meaning all other taxpayers must act independently. Filing a protective claim before the July 10, 2026, deadline is the only way for taxpayers to preserve their rights while the case is finalized.
Who Does This Impact?
This opportunity applies to individuals and businesses that were assessed any of the following charges during the covered period from January 20, 2020, through July 10, 2023:
- Failure to file penalties.
- Failure to pay penalties.
- Failure to make estimated tax payment penalties.
- Interest: charged on these penalties or outstanding balances due.
What is a Protective Claim?
A protective claim is a placeholder claim filed to preserve a taxpayer’s right to a refund while an unsettled legal question works its way through the courts.
Because the final outcome of the Kwong case is still pending, a protective claim keeps your window open. If the ruling is ultimately affirmed, taxpayers who filed protective claims are in line for refunds. Those who do not file before the statute of limitations expires will not be eligible for relief.
What happens after filing?
The IRS will hold all protective claims in suspense or deny them on the merits while the legal process plays out in the Federal Circuit, which could take up to two to three years. If the IRS loses the appeal, a formal refund claim is required to request the taxpayer’s specific refund amount.
Next Steps: Protect Your Financial Rights
While there is no absolute certainty on how the courts will ultimately decide this case, filing a protective claim is essential to ensuring you do not lose your right to a refund.
Please reach out to your Service Leader or contact Tomika Bullet to evaluate your eligibility and discuss how these steps can help maximize your financial situation.
FAQ
Who should consider filing? Individuals and businesses that paid eligible penalties or interest during the covered period.
Will the IRS issue refunds automatically? No. Taxpayers must file to preserve their rights.
What is the deadline? Protective claims must be filed by July 10, 2026.
What happens after filing? The IRS may hold the claim while the appeal moves forward.
