Most Americans think tax season is over for the year. A federal court ruling says it isn't. A case called Kwong v. United States may have just opened the door to refunds on Covid-era IRS penalties, and the window to claim one closes on July 10.
What The Ruling Actually Says
The court found the IRS shouldn't have assessed certain penalties and interest from Jan. 20, 2020 through July 10, 2023, a window that covers the Covid federal disaster period plus an extra 60 days.
The legal hook is a tax code rule that pauses filing and payment deadlines during a disaster, which the judges said the IRS missed when it slapped on penalties during the pandemic. Filers who paid on time generally have three years to claim a refund, so the deadline lands on July 10, 2026.
One catch: the ruling isn't final yet. The government can still appeal, which is why most people are filing what's called a protective claim - a placeholder that locks in your right to a refund while the case keeps moving.
National Taxpayer Advocate Erin Collins called it a "major refund opportunity" in an April 30 blog post. Collins runs the Taxpayer Advocate Service, an independent group inside the IRS.
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Who Could Get Money Back
This isn't a small group. The IRS handed out more than 14.2 million estimated tax penalties to individuals in fiscal year 2023, with another 18.6 million for failure to pay.
The failure-to-file penalty runs 5% of unpaid taxes per month, capped at 25%, while the failure-to-pay penalty runs 0.5% per month with the same 25% cap. Both stack with interest, so a missed deadline during Covid could have added hundreds or thousands of dollars to a tax bill.
"This issue is widespread and not limited to a small or specialized group of taxpayers," Collins wrote on May 5, naming "individuals, small businesses, large corporations, estates and trusts" as potentially affected.
Tax pros are now racing to flag the deadline to clients. "These cases have opened the door to what could become one of the largest waves of tax refund claims in recent years," tax consultant Victoria Boon of Boon Tax Educators told CNBC.
What To Watch
The mechanics are unusually clunky for anyone hoping to claim a refund. Most taxpayers have to use Form 843, which can't be filed online and has to be mailed in, ideally by certified mail so there's proof it went out before the deadline.
People who already paid the penalties are asking for a refund, and people with unpaid balances are asking for an abatement, which is just a penalty waiver.
Three steps Collins recommends taking now:
- Pull your IRS account transcript to see if you were hit with eligible penalties or interest between Jan. 20, 2020 and July 11, 2023
- Talk to a tax pro before mailing anything in
- File a protective claim if you're unsure whether you qualify, so you don't lose the right to a refund if the ruling stands
July 10 is two months away. After that, the door closes.
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