Understanding the Kwong Ruling: Can You Reclaim COVID-Era Tax Penalties?

Name: FLG Tax Consultants
Address: Brentwood, CA, 94513
Telephone: (925) 331-8325

For many taxpayers and business owners, the COVID-19 pandemic wasn't just a health crisis; it was a period of intense administrative chaos. If you paid the IRS failure-to-file or failure-to-pay penalties during that time, a recent decision by the U.S. Court of Federal Claims suggests you might have paid them prematurely—and you could be owed a refund.

The ruling in Kwong v. United States challenges how the IRS handled deadline extensions during the federally declared disaster. Here is a breakdown of the case, the opportunity it creates for refunds, and why filing a protective claim is the smart move right now.

The Core of the Kwong Decision

At the heart of Kwong v. U.S. is a dispute over dates. During federally declared disasters, the tax code (specifically Section 7508A(d)) provides mandatory deadline extensions. While the IRS argued these extensions were limited to one year, the court ruled that the mandatory extension actually spanned the entire disaster period—from January 20, 2020, to July 10, 2023.

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This is a major deviation from the IRS's stance. By rejecting the one-year cap, the court effectively signaled that the legal deadline for filing and paying taxes for affected periods was moved to July 10, 2023. Consequently, penalties assessed before that date may lack legal standing.

Does This Apply to You?

If the deadlines were legally moved to July 2023, then "late" filing or payment penalties assessed between 2020 and mid-2023 could be invalid. This opens the door for taxpayers to request the return of those funds. However, the window to act is not open indefinitely, and the process requires specific steps to ensure your rights are locked in.

Steps to Preserve Your Refund Rights

Because this involves tax law and potential government appeals, simply asking for a check isn't enough. We recommend a strategic approach:

Analyze Your Transcripts: First, we need to verify if you were charged penalties or interest for deadlines falling between January 20, 2020, and July 10, 2023. You can access your records via the Get Transcript tool on IRS.gov, by mailing Form 4506-T, or by calling 800-908-9946. Online access is the fastest method, but if interpreting the codes gets confusing, our office can pull and review these for you.
File a Protective Refund Claim: This is the most critical step. The government will likely appeal the Kwong decision. To ensure the statute of limitations doesn't expire while the lawyers battle it out in court, you must file a "protective claim" using Form 843. This acts as a placeholder, preserving your right to a refund if the ruling stands.
Leverage Abatement Options: If you still have an outstanding balance involving penalties from this era, the Kwong ruling can be cited as justification for abatement. Additionally, starting in 2026, the IRS is automating First-Time Abatement (FTA) for eligible taxpayers, offering another layer of potential relief.

The Clock is Ticking

Tax matters always come with strict timelines. Under this ruling, claims for refunds must generally be filed within three years of the legally recognized deadline. This sets the hard cutoff date at July 10, 2026.

While that seems far off, the appeals process is slow, and gathering records takes time. Waiting until the last minute increases the risk of paperwork errors or missed opportunities.

Let’s Review Your Options

If you suspect you paid penalties that this ruling might overturn, don't wait for the IRS to notify you—they rarely volunteer refunds. Contact our office today. We can review your account transcripts, help you file a protective claim, and ensure you are positioned to recover overpayments if the Kwong decision holds firm.

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