Kwong v. United States: Possible Refund Claims for Certain IRS Penalties and Interest

A recent federal tax case, Kwong v. United States, has created a potential opportunity for some taxpayers to request refunds or abatements of IRS penalties and interest assessed during the COVID-19 disaster period.

The issue is still developing, and no refund is guaranteed.  However, some taxpayers may need to act by July 10, 2026 to preserve their rights.  Relief is not expected to be automatic.

What is the Kwong case?

In Kwong v. United States, the U.S. Court of Federal Claims addressed how certain disaster-related tax deadline rules applied during the COVID-19 federal disaster period.  The court’s reasoning suggests that some filing and payment deadlines may have been postponed for a longer period than the IRS previously applied.

If that interpretation ultimately holds, certain penalties and interest charged during the COVID period may have been improperly assessed.

The IRS has appealed the decision, so the law is not settled.  Taxpayers should treat this as a potential protective claim opportunity, not a guaranteed refund.

Who may be affected?

This issue may affect individuals, businesses, trusts, estates, and other taxpayers who had federal tax filing or payment obligations during the COVID disaster period.

You may want to review your situation if you:

• filed a federal tax return late during the COVID period;
• paid federal taxes after the original due date;
• were charged failure-to-file penalties;
• were charged failure-to-pay penalties;
• were charged estimated tax penalties;
• paid IRS interest related to late filing or late payment;
• still owe IRS penalties or interest from those years;
• filed certain international information returns late.

The Taxpayer Advocate Service has specifically noted that IRS account transcripts can help identify penalty and interest charges that may be affected.

What years are involved?

For many individual income tax clients, the affected years may include:

• 2019
• 2020
• 2021
• 2022

Other tax types and tax periods may also be affected, including certain business, payroll, estate, gift, excise, and information return filings.

The key question is not only the tax year.  The key question is whether the relevant filing, payment, penalty, interest, or refund-claim deadline falls within the COVID disaster relief period discussed in the case.

What is the July 10, 2026 deadline?

The National Taxpayer Advocate has warned that many taxpayers may need to file refund claims or protective claims on or before July 10, 2026 to preserve potential rights.  Missing the applicable deadline could mean losing the ability to recover penalties or interest, even if later court decisions are favorable.

The exact deadline can depend on the facts, including when the return was filed, when penalties or interest were paid, and what type of claim is involved.

What is a protective claim?

A protective claim is a filing made to preserve a taxpayer’s right to a refund while the law is still uncertain.

In this situation, the courts have not yet reached a final answer.  A protective claim may allow a taxpayer to preserve rights now and provide additional details later after the legal issue is resolved.

A protective claim does not mean the IRS will issue an immediate refund.  It also does not guarantee that the IRS will ultimately allow the claim.

What form is used?

For many penalty and interest refund or abatement claims, taxpayers may need to file Form 843, Claim for Refund and Request for Abatement.  Form 843 is generally used to request a refund or abatement of certain taxes, penalties, interest, fees, and additions to tax.

In some cases, a different form may be required, such as an amended return.  The correct filing method depends on the type of claim.

What should clients do now?

If you believe you paid IRS penalties or interest for late filing, late payment, or estimated tax issues during the COVID period, you should review your IRS account transcripts or contact our office.

In many cases, the first step is to obtain an IRS Account Transcript for the affected year.  The transcript can show whether the IRS assessed penalties, interest, payments, adjustments, or refunds.

We are reviewing this issue and may reach out directly to clients whose tax records indicate potential exposure.  If you receive a communication from our office, please respond promptly.  The July 10, 2026 date is an outside deadline, and additional time is needed to review transcripts, prepare filings, obtain signatures, and mail claims to the IRS.

Important caution

This issue is unsettled.  The IRS may deny claims, hold claims, or wait for further court guidance.  Filing a protective claim is about preserving potential rights, not guaranteeing a refund.

Taxpayers should also be cautious of anyone promising guaranteed refunds, charging excessive fees, or pressuring them to file claims they do not understand.

Bottom line

Kwong may create a refund or abatement opportunity for some taxpayers who were charged IRS penalties and interest during the COVID disaster period.  The opportunity is not automatic, and the law is still developing.

Clients who may be affected should act promptly so there is enough time to review transcripts and determine whether a refund claim, abatement request, or protective claim is appropriate.