Did You Pay IRS Penalties During the Pandemic? New Ruling Offers Hope for Refunds

If you or your business paid IRS penalties and interest during the chaos of the COVID-19 pandemic, you might want to pay close attention to a developing legal situation. A recent court case has called into question whether the IRS actually had the authority to charge those penalties in the first place.

The ruling in Kwong vs. United States by the U.S. Court of Federal Claims is a potential game-changer. It suggests that many "failure-to-file" and "failure-to-pay" penalties assessed between 2020 and 2023 were applied incorrectly. At Christiansen Accounting, we are closely monitoring this because it could open the door for significant refunds for our clients.

The Kwong Decision Explained

At the heart of this case is a disagreement over how tax deadlines work during a federally declared disaster. In Kwong vs. U.S., the court determined that the 2019 version of the tax code (specifically Section 7508A(d)) mandated an automatic extension of tax deadlines during the pandemic. While the IRS argued they could limit these extensions to one year, the court rejected that stance.

According to the ruling, the mandatory extension period actually spanned from January 20, 2020, all the way to July 10, 2023. Effectively, this means the legal deadline for paying taxes was pushed to July 2023. Consequently, penalties charged for missing deadlines before that date may have been invalid.

Steps to Protect Your Potential Refund

While this is good news, the refund process isn't automatic. You need to take specific steps to verify your eligibility and preserve your rights.

Check Your Account History: First, we need to see if you were actually charged penalties or interest for deadlines falling between January 20, 2020, and July 10, 2023. You can review this by accessing your tax transcripts. These are available for free via the Get Transcript tool on IRS.gov. If interpreting these codes feels like reading a foreign language, our team is here to help you review them.
File a Protective Claim (Form 843): This is the most critical step. The government will likely appeal the Kwong decision. To ensure you don't lose your right to a refund while the lawyers battle it out in higher courts, you should file a "protective claim" using Form 843. This effectively acts as a bookmark, keeping the statute of limitations open for you.
Request Abatement: If you still have an outstanding balance for penalties from this era, the Kwong ruling can be cited as justification for removing them.

Desktop with financial documents

Why You shouldn't Wait

It is important to understand that the window to act is not open indefinitely. The ruling indicates that claims related to this decision must be filed within three years of the legally recognized deadline. That puts the final cutoff at July 10, 2026.

Furthermore, beginning in 2026, the IRS is planning to automate First-Time Abatement (FTA) for eligible taxpayers with clean histories. While that helps for the future, it doesn't solve the issue of past penalties paid during the pandemic.

Let's Review Your Position

If you faced penalties during the pandemic, don't assume that money is gone forever. However, navigating protective claims and transcripts can be complex. Reach out to Christiansen Accounting today. We can help review your past transcripts and ensure the necessary protective claims are filed so you don't miss out on a refund due to a technicality.

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