Tens of millions of taxpayers could be owed refunds from the IRS for penalties and interest charged during the COVID-19 pandemic, following a landmark federal court ruling. But with a strict July 10, 2026 deadline approaching, taking action now could mean the difference between receiving a significant refund and leaving money on the table.

The potential refunds stem from Kwong v. United States, a November 2025 ruling by Judge Molly Silfen of the U.S. Court of Federal Claims. The court determined that the IRS improperly assessed late-filing penalties, late-payment penalties, and interest during the COVID-19 federal disaster period — a window that stretched from January 20, 2020, through July 10, 2023. According to the National Taxpayer Advocate, taxpayers who were charged these fees may now be entitled to a refund or an abatement (reduction or elimination) of what they owe.

Here is what every taxpayer needs to know about this unfolding financial opportunity and how to secure a potential refund.

How the Kwong Ruling Unlocked Millions in Potential Refunds

The Kwong decision turned on a technical but crucial interpretation of tax law. Under the Internal Revenue Code, when a federally declared disaster occurs, tax deadlines are automatically postponed. FEMA's COVID-19 disaster incident period ran from January 20, 2020, through May 11, 2023, and tax law added another 60 days — extending the covered period to July 10, 2023.

The court ruled that this extension was mandatory and self-executing, meaning filing and payment deadlines were automatically pushed out for the full 3.5-year window. In the court's own words: "The plain meaning of that statute is that the automatic extension runs from the beginning of the disaster declaration, through the end of the declared disaster period, and until 60 days after the end of the declared disaster period."

The ruling builds on a 2024 U.S. Tax Court decision, Abdo v. Commissioner, which similarly held that the disaster postponement was mandatory. Together, these two decisions reject the IRS's narrower interpretation and could unlock refunds for tens of millions of taxpayers.

The stakes are enormous. In fiscal year 2022 alone, the IRS levied more than 12 million estimated-tax penalties and over 16 million failure-to-pay penalties totaling more than $12 billion. The IRS previously refunded about $1.2 billion in penalties to roughly 1.6 million taxpayers under a narrower 2022 relief notice, but tax professionals say the legal theory at issue in Kwong reaches far more taxpayers and covers a wider range of penalties and interest charges.

Timeline: From Disaster Declaration to Filing Deadline

January 20, 2020 — FEMA declares COVID-19 a federal disaster, triggering automatic tax deadline postponements under the Internal Revenue Code.

January 20, 2020 – May 11, 2023 — The COVID-19 disaster incident period remains active for nearly 3.5 years.

July 10, 2023 — The tax relief period ends (60 days after the disaster period ends). Under the Kwong interpretation, any penalties or interest assessed during this window may have been improperly charged.

2022 — The IRS voluntarily provides narrower penalty relief, refunding $1.2 billion to 1.6 million taxpayers, but only covering certain 2019 and 2020 returns.

2024 — The U.S. Tax Court rules in Abdo v. Commissioner, supporting the argument that disaster postponements are mandatory.

November 2025 — Judge Silfen issues the Kwong v. United States ruling, opening the door to far broader refund claims covering the entire disaster period.

April 30, 2026 — The National Taxpayer Advocate publishes a detailed blog post alerting taxpayers to the potential refunds and the upcoming deadline.

July 10, 2026 — The deadline to file a claim for a COVID-era penalty refund. Most taxpayers must act by this date to preserve their rights.

Why This Matters for Your Financial Planning

For investors and taxpayers alike, the Kwong ruling represents a significant financial planning opportunity. Anyone who filed taxes late, paid taxes late, or was assessed estimated-tax penalties between January 2020 and July 2023 could be eligible — and that covers a vast swath of Americans.

According to the National Taxpayer Advocate, affected taxpayers include "individuals, small businesses, large corporations, estates, and trusts." The penalties and interest that could be refunded or abated apply to income taxes, employment taxes, estate taxes, gift taxes, and excise taxes. If you were self-employed, ran a small business, or struggled to make estimated tax payments during the pandemic, you are likely among those who could benefit.

Importantly, the government is expected to appeal the Kwong decision, meaning the ruling's long-term status is not guaranteed. However, by filing a protective claim before the July 10 deadline, taxpayers can preserve their right to a refund even if the appeal takes years to resolve. This is a classic "better safe than sorry" financial planning move.

Financial advisers are already recommending that clients check their IRS account transcripts for any penalties assessed during the COVID period. A key step is to review your IRS tax account transcript, which shows penalties, interest, payments, account adjustments, and refunds. The National Taxpayer Advocate has published guides on how to use these transcripts to identify potential refunds.

Where Things Stand Now: What Taxpayers Should Do Today

Despite the significance of the Kwong ruling, the IRS itself has remained notably silent. USA Today reported that the agency has not issued official guidance on the decision, leaving taxpayers to rely on information from the National Taxpayer Advocate, tax professionals, and news reports.

Here is what you need to do right now to protect your potential refund:

  1. Check your IRS account transcript. Log into your IRS online account or request a tax return transcript to identify any penalties and interest assessed between January 20, 2020, and July 10, 2023.
  2. Prepare Form 843. You will need to file IRS Form 843, "Claim for Refund and Request for Abatement." The form is available on the IRS website.
  3. Write the magic words on your form. The National Taxpayer Advocate recommends writing "Protective Refund Claim Pursuant to Kwong Case" or something similar across the top of the form.
  4. Mail by certified mail. Send the completed form by certified mail with a return receipt requested so you can prove you submitted it by the deadline.
  5. Meet the July 10, 2026 deadline. Generally, taxpayers must file their claim within three years from the date they filed their tax return or two years from the date they paid their tax.

What Happens Next: The Road Ahead for COVID-Era Refunds

The future of these refunds depends heavily on the expected appeal of the Kwong decision. If the government appeals and wins, the refund claims may be denied. But filing a protective claim now ensures that if the ruling is ultimately upheld, you will be in line for a refund. If the government loses the appeal or does not appeal, the refunds could flow more broadly.

Tax professionals recommend acting sooner rather than later. The July 10, 2026 deadline is strict, and with potentially tens of millions of taxpayers eligible, the volume of claims could overwhelm processing systems as the deadline approaches.

The Bottom Line: Key Points to Remember

  • You may be eligible for a refund of IRS penalties and interest charged during the COVID-19 disaster period (January 20, 2020 – July 10, 2023).
  • Refunds are not automatic — you must file Form 843 by July 10, 2026.
  • Tens of millions of taxpayers could be affected, including individuals, small businesses, corporations, estates, and trusts.
  • The government may appeal the Kwong decision, so filing a protective claim now preserves your rights.
  • Check your IRS transcript today to identify if you were charged eligible penalties — the clock is ticking on this potential financial windfall.