A U.S. Court of Federal Claims recently determined (in Kwong v. United States) that the COVID-19 disaster declaration that lasted from January 20, 2020, through July 10, 2023, legally suspended IRS payment and filing deadlines. This finding means the IRS did not have the authority to assess certain penalties or underpayment of interest during that timeframe.
As a result, taxpayers may be eligible to claim a refund or request an abatement for certain IRS penalties and interest assessed during the disaster period.
This is most relevant for 1040 filers who filed late, paid late, or received IRS notices showing penalties or interest for tax years 2019 through 2022. This would also affect similar 1120 filers.
Determining Eligibility
Eligibility depends on your specific facts, including the type of penalty, the timing of the return or payment, and whether the IRS has already removed or reduced the amount owed. In general, eligible taxpayers have:
- Filed a 2019, 2020, 2021, or 2022 tax return late and incurred penalties or interest;
- Paid estimated tax payments late during the COVID-19 disaster period;
- Paid, or still owe, the IRS penalties or interest related to late filing or late payment during the COVID-19 disaster period;
- Received IRS notices related to penalties, interest, or late filing for those years;
- Filed certain international information returns late; and
- Have not already received relief for the penalties or interest in question.
What Is a Protective Claim?
A protective claim is a filing that preserves your right to request a refund until there is full clarity about an outcome. Even though the Kwong case was satisfied in the taxpayers’ favor, it is unclear if the IRS will acquiesce on this issue for all taxpayers. Filing a claim now extends the time period to file an actual claim until a future date when this issue is fully settled.
Taxpayers who don’t file by the July 10, 2026, deadline may not reserve the right to a refund, even if qualified. While filing a claim does not guarantee a refund, it will preserve your ability to seek relief once the courts or the IRS settle this issue.
Next Steps
Contact your advisor if you believe you are eligible. Aldrich will then review available records, identify whether penalties or interest were assessed during the relevant period, and help determine whether a refund or protective claim is appropriate.
