Landmark Ruling: You May Be Owed a Refund for COVID-Era IRS Penalties

For many of our clients here in the Dallas-Fort Worth area and across the country, the pandemic introduced unprecedented financial confusion. If you found yourself paying IRS tax penalties or interest during the COVID-19 crisis, a significant legal development suggests those charges might have been improper—and potentially refundable.

A recent decision by the U.S. Court of Federal Claims in Kwong vs. United States challenges how the IRS handled deadlines during the national emergency. At MJ Ahmed CPA PLLC, we are closely monitoring this situation because it could open a narrow window for taxpayers to recover funds paid for "failure-to-file" or "failure-to-pay" penalties assessed between 2020 and 2023.

Understanding the Kwong Decision

The core of this ruling revolves around Internal Revenue Code Section 7508A(d). The court determined that during a federally declared disaster—which the COVID-19 pandemic was—tax deadline extensions should have been automatic and mandatory. While the IRS argued that extensions were limited, the court ruled that the statutory language effectively moved tax deadlines to July 10, 2023.

This means that penalties assessed for missed deadlines between January 20, 2020, and July 10, 2023, may have been legally invalid. If the deadline was legally extended, you technically weren't late, and the penalties shouldn't exist.

Office buildings representing federal institutions

This decision is not just a technicality; it represents a tangible opportunity for relief. However, because the government will likely appeal this decision, taking the right procedural steps now is critical to preserving your rights.

Strategic Steps to Protect Your Potential Refund

With over 25 years of experience navigating complex tax landscapes, MJ advises that clients act proactively rather than waiting for the IRS to issue refunds automatically (which is unlikely to happen without a claim).

1. Analyze Your Tax History

The first step is a forensic review of your account. You need to identify any penalties or interest charged for deadlines falling within the specific window of January 20, 2020, to July 10, 2023.

You can access your records by ordering a tax transcript. This is available for free via the Get Transcript tool on IRS.gov. While you can request these by mail (Form 4506-T) or phone (800-908-9946), the online portal is significantly faster. If interpreting these codes feels like reading a foreign language, our team can assist in reviewing your transcripts.

2. File a Protective Claim

This is the most critical step. Because the Kwong case may be tied up in appeals for some time, we must file what is known as a "protective claim" using Form 843 (Claim for Refund and Request for Abatement). This essentially acts as a bookmark in the legal system.

Filing a protective claim stops the statute of limitations clock from running out while the courts finalize the ruling. Without this placeholder, you might lose your right to a refund simply because too much time has passed, even if the higher courts ultimately agree with the Kwong decision.

3. The Timeline and Expiration

The ruling dictates that claims related to this decision generally must be filed within three years of the recognized deadline. This sets a hard cap: July 10, 2026 is the final day to submit claims. While that sounds far off, gathering documentation and filing correctly takes time.

Summary of Options

Protective Refund Claim: File Form 843 to safeguard your right to a refund while the government appeals.
Penalty Abatement Request: Use the Kwong precedent as justification to request removal of outstanding penalties you haven't paid yet.
First-Time Abatement (FTA): Remember that starting in 2026, the IRS plans to automate FTA for eligible taxpayers with clean histories, offering a secondary route for relief.

If you believe you paid substantial penalties during the pandemic, do not assume the money is gone forever. Contact MJ Ahmed CPA PLLC today. We can help you review your transcripts and file the necessary protective claims to ensure you don't miss out on what could be a significant refund.

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