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Tens of millions of Americans may be owed refunds on IRS penalties and interest from the pandemic. The catch: claims have to be filed on paper by July 10, 2026, and the IRS hasn't gone out of its way to publicize it.
National Taxpayer Advocate Erin Collins called that out in an April 30 blog post, warning the deadline could quietly pass for most affected taxpayers while a smaller group with tax attorneys collect what could be billions in refunds. (1)
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"My overriding goal is to get the word out to as many taxpayers as possible and to avoid disparate results between the 'well advised' and the 'unaware,'" Collins wrote. (1)
Here's what triggered it, who may be eligible and what has to happen before any money changes hands.
The issue stems from a November 2025 ruling in Kwong v. United States, decided by Judge Molly Silfen of the U.S. Court of Federal Claims. (2)
A tax code provision known as IRC § 7508A(d) automatically pauses federal filing and payment deadlines during a declared national disaster, plus 60 days. The COVID-19 disaster declaration ran from Jan. 20, 2020 to May 11, 2023. Add the 60-day buffer and the pause runs through July 10, 2023 — a stretch of nearly three and a half years. (1)
The court ruled that under the plain reading of Section 7508A(d), deadlines really were paused for that entire window, meaning returns and payments made during the pandemic weren't legally late, and the IRS shouldn't have charged penalties or interest on them. (1)(2)
A separate Tax Court ruling, Abdo v. Commissioner (2024), reached a similar conclusion, strengthening the legal foundation for refund claims. (1)
The IRS disagrees, arguing the rule requires a defined end date to trigger automatically. The Justice Department is expected to appeal. (2)
Under the reasoning of the Kwong decision, taxpayers may be entitled to a refund or abatement for several types of charges assessed between Jan. 20, 2020 and July 10, 2023: (1)
Interest charged on liabilities during the disaster window
Overpayment interest the IRS owed taxpayers but never paid
The relief covers tax years 2019 through 2022 and applies broadly. Collins noted impacted taxpayers include "individuals, small businesses, large corporations, estates and trusts." (2)
The dollar amounts vary widely. For individuals with a single failure-to-file penalty, the refund may run a few hundred to a few thousand dollars. For business owners with payroll tax issues, partnership late-filing penalties or international reporting violations, claims can reach tens or hundreds of thousands of dollars. (3)
The scale of the overall pool is significant. In fiscal year 2022 alone, the IRS levied more than 12 million estimated-tax penalties and more than 16 million failure-to-pay penalties, totaling over $12 billion. (2)
The IRS already issued roughly $1.2 billion in penalty refunds to about 1.6 million taxpayers under a 2022 notice, but Kwong's reach is far broader. (4)
To check whether you're affected, pull your IRS account transcript at IRS.gov. Penalties and interest assessments are itemized with dates. If anything was charged during that 3.5-year window, it's potentially within scope. (5)
Kwong is one Court of Federal Claims ruling, and the Justice Department is expected to appeal. Resolution could take years, and there's no guarantee the decision survives. (2)
Major corporations have already moved on it. Western Digital and Meta have invoked Kwong in their own pending IRS disputes, and tax attorneys say they're working through claim filings for both individual and business clients. (2)
For everyone else, the path forward depends on appeal. If the ruling holds, taxpayers who filed claims should receive refunds. If the IRS or Congress intervenes with systemic relief — something Collins has formally requested — affected taxpayers could see automatic abatements. If the government prevails, claims will be denied. (1)
Collins has urged the IRS to publicize the issue, extend the deadline by six months, consider blanket relief and build an electronic filing portal. (1)
Either way, the only way to preserve the right to a refund is to file before the July 10, 2026 deadline. (1)
Filing the claim itself is straightforward but slow. The IRS requires Form 843 — Claim for Refund and Request for Abatement — to be submitted on paper. There's no electronic option. Because the IRS doesn't issue a receipt for paper filings, and forms can disappear in transit, Collins recommends certified mail. (1)
Taxpayers who don't know their exact penalty amount have another option: a protective claim. This is a Form 843 filing that preserves the right to a refund without requiring a precise dollar figure — it just has to identify the affected tax years, describe the contingency and reference Kwong. (2) Collins recommends writing "Protective Refund Claim Pursuant to Kwong Case" across the top of the form. (1) The IRS typically holds protective claims in suspense until the underlying litigation resolves, then processes them once the final numbers can be calculated. (1)
After filing, the timeline depends on the courts. The Justice Department's expected appeal could take a year or more at the Federal Circuit, with potential Supreme Court review on top. The IRS will process claims based on the final legal outcome.
For now, the burden is on individual taxpayers to identify the issue, file before the cutoff and wait.
The Kwong decision has shaken the tax bar. "I think it's quite unusual and I think it's potentially a large deal," Washington tax lawyer Steve Rosenthal told The Wall Street Journal in February. "The IRS is really on its hind heels here." (6)
For taxpayers who paid IRS penalties or interest between January 2020 and July 2023, the question is whether it's worth filing. A protective claim makes that calculation simpler. Larger claims involving overpayment interest or estimated tax penalties across multiple years get complicated quickly, and Form 843 is unforgiving on errors.
A tax professional or financial advisor can help run the numbers and get the paperwork in before the cutoff. With no electronic option and no second chances, July 10 is the only deadline that matters.
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We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Taxpayer Advocate Service (1); InvestmentNews (2); Frost Law (3); Internal Revenue Service (4, 5); The Wall Street Journal (6)
This article originally appeared on Moneywise.com under the title: IRS watchdog warns millions could be owed pandemic refunds — but the deadline is closing fast. Do this now to check
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.