A new COVID-era tax refund opportunity is putting millions of Americans on alert, but it is not another automatic stimulus check quietly landing in bank accounts. This one is tied to IRS penalties and interest that may have been assessed during the pandemic years, and taxpayers may have to raise their hands before the money can be returned. The key date is July 10, 2026. For many people, that deadline may decide whether they preserve a possible refund or lose the chance altogether.
The issue comes from a court case known as Kwong v. United States. In simple terms, the case raised a major question: should many federal tax filing and payment deadlines have been treated as postponed during the COVID-19 national emergency? The Taxpayer Advocate Service says the federal COVID disaster declaration ran from January 20, 2020, through May 11, 2023, and the additional 60 days extended the tax-related period to July 10, 2023.
Under the court’s reasoning, returns and payments due inside that window may not have been late until after July 10, 2023. That matters because the IRS charged many taxpayers penalties and interest during those years. If the taxpayer-friendly interpretation ultimately stands, some of those charges may have been premature or improper. The Taxpayer Advocate Service has warned that tens of millions of taxpayers may be eligible for refunds or abatements of COVID-period penalties and interest, but the relief is not automatic. Most taxpayers must file a claim by July 10, 2026.
Who may be eligible?
The clearest group includes taxpayers who paid IRS penalties or interest tied to late filings or late payments during the COVID-19 pandemic. That could include individuals, small business owners, corporations, estates, trusts, and taxpayers facing penalties for income, employment, estate, gift, excise, or certain international information returns.
This does not mean every taxpayer gets money. People who filed on time, paid on time, and were never charged penalties or interest may have nothing to claim. The refund is tied to what the IRS actually assessed or collected. A taxpayer who paid a late filing penalty, late payment penalty, estimated tax penalty, or related interest during the affected years may want to review their account.
The Taxpayer Advocate Service also says people with assessed but unpaid penalties may need to request an abatement rather than a refund. In other words, if you already paid the penalty, you may be asking for money back. If the IRS has charged it but you have not paid it, you may ask the agency to remove or reduce the charge.
How much could people get?
There is no flat refund amount. The check, credit, or balance reduction depends on the penalties and interest connected to each taxpayer’s account. For some, the amount could be modest. For others, especially people or businesses with large tax balances, the amount could climb into the hundreds or even thousands of dollars.
The math can add up quickly because IRS penalties are not always tiny. The failure-to-file penalty is generally 5 percent of the unpaid tax for each month or part of a month that a return is late, up to 25 percent. The failure-to-pay penalty is generally 0.5 percent of unpaid taxes for each month or part of a month the tax remains unpaid, capped at 25 percent. Add interest on top, and a missed deadline during a chaotic pandemic year could have become a painful bill.
That is why this story has caught attention. It is not about a new government handout. It is about whether taxpayers were charged money they may not have owed under disaster relief rules.
What taxpayers need to do now
The first step is to check IRS tax account transcripts and old IRS notices. The Taxpayer Advocate Service says taxpayers should look for penalties, interest, payments, refund activity, or other account activity from January 20, 2020, through July 10, 2023, or for tax years that may be affected by that period.
For Kwong-related penalty and interest claims, the main form is IRS Form 843, Claim for Refund and Request for Abatement. The IRS says Form 843 is used to claim a refund or request an abatement of certain taxes, interest, penalties, fees, and additions to tax.
The IRS has also posted specific instructions for claims citing Kwong v. United States. Certain individual taxpayers with an IRS Online Account may submit Form 843 electronically, but only for fully paid interest and penalties that cite Kwong. Business taxpayers and individuals who do not use the electronic option may complete the paper Form 843 and mail it to the IRS in Ogden, Utah.
The IRS says taxpayers should write “Kwong vs. United States” across the top of the form. Taxpayers filing a protective claim should identify themselves, the tax year or years involved, the penalties or interest at issue, and the legal basis for the claim. The Taxpayer Advocate Service also recommends keeping copies and using certified mail or another method that proves timely mailing.
Why a protective claim matters
The legal fight is not fully settled. That means some taxpayers may be filing not because a refund is guaranteed today, but because they want to protect their right to collect later if the courts ultimately side with taxpayers. A protective claim can preserve the right to a refund while the legal issue remains uncertain, and it does not always require taxpayers to know the exact dollar amount at the time of filing.
That point is important because waiting for the courts may be risky. If the deadline passes, a taxpayer may later learn they would have qualified but no longer have a valid claim on file. The safest move for someone who may be affected is to review the record now, not after the window closes.
There is also a broader category worth watching. The Taxpayer Advocate Service says the potential impact may not be limited only to penalties and interest. Some taxpayers who overpaid taxes for tax years 2019 through 2022 may need to consider whether they still have time to file original returns, amended returns, refund claims, or protective claims.
The bottom line is straightforward: this refund opportunity is real enough to investigate, but complicated enough to handle carefully. It is not automatic, not guaranteed, and not the same for everyone. People who paid IRS penalties or interest during the COVID years should check their transcripts, gather notices, consider professional tax help, and file the right claim before July 10, 2026.
For taxpayers who were hit with pandemic-era penalties, this may be one of those rare moments when an old IRS bill deserves a second look.
