Summary (tl;dr)

Millions of U.S. taxpayers may be eligible for refunds of penalties assessed by the IRS during the COVID-19 pandemic, either automatically or by filing a claim due to recent court interpretations, with a critical deadline approaching for many.

Essential Background

During the COVID-19 pandemic, the IRS implemented various relief measures to assist taxpayers facing unprecedented challenges. This included automatic penalty relief for certain late-filed 2019 and 2020 tax returns and later, automatic waivers for "failure-to-pay" penalties for tax years 2020 and 2021, particularly for those who did not receive automated collection reminder notices. These prior relief efforts helped many taxpayers avoid or recover penalties.

The Full Story

The keywords are trending due to recent developments and warnings from the Taxpayer Advocate Service (TAS) regarding potentially broader refund eligibility. While some taxpayers already received automatic penalty relief and refunds from the IRS, a federal court ruling in the Kwong v. U.S. case has opened the door for millions more to claim refunds for penalties and interest incurred during the entire COVID-19 federal disaster period, from January 20, 2020, to July 10, 2023. The TAS argues that under disaster emergency laws, tax deadlines were effectively postponed until after this period ended, meaning many penalties for late filing or payment during this time were wrongly assessed. Taxpayers who paid these penalties or still owe them for this period may need to proactively file Form 843 to claim a refund or abatement, with a potential deadline of July 10, 2026, for many. The Department of Justice, however, is expected to appeal the Kwong decision, suggesting the legal process could be lengthy.

Why It Matters

This trend is significant because it could lead to tens of millions of taxpayers receiving refunds or having penalties removed, potentially totaling billions of dollars. Taxpayers are concerned and interested as they review their tax records for the pandemic years (2020-2023) to determine if they qualify and how to file a claim before the looming July 10, 2026, deadline. Many were unaware that the IRS continued to assess penalties even while collection notices were paused. The outcome of the Kwong v. U.S. case and the TAS's guidance have prompted a widespread re-evaluation of past tax liabilities and offers a chance for financial relief for many individuals and businesses.

Geographic Location

• United States (IRS pandemic penalty relief initiatives and potential refunds for taxpayers nationwide)
• United States (litigation of the Kwong v. U.S. case)