H2R CPA Blog

Recent Court Decision May Create Opportunity to Recover IRS Penalties and Interest

A recent federal court decision, Kwong v. United States, may create an opportunity for some taxpayers to seek refunds or other relief for certain IRS penalties and interest connected to the COVID-19 period.

While the law in this area is still developing, July 10, 2026 may be a critical deadline for preserving those claims or requesting a refund or abatement. We are monitoring this development and evaluating whether the ruling may apply based on individual circumstances.

Why this matters

During the COVID-19 pandemic, a federal disaster declaration was in effect from January 20, 2020, through May 11, 2023. Sixty additional days extended the period to July 10, 2023, for tax purposes. Based on the court’s reasoning in Kwong, filing and payment deadlines were postponed during that entire period. By the court’s logic, the IRS should not have assessed penalties for late filing or payment during that 3.5 year period, nor charged interest on those amounts.

The government’s pleadings interpreted the postponement statute more narrowly and disagreed that the statute suspended filing and payment obligations for 3.5 years. As a result, penalties and interest that accrued during that time may, in some cases, have been assessed incorrectly.

Who may be affected

This issue may impact a broad range of taxpayers—including individuals, businesses, and trusts/estates—particularly those with:

  • Late-filed returns during the 2020–2022 period
  • Outstanding IRS balances that include penalties and interest
  • Prior payments of penalties or interest related to those years

Items worth reviewing

  • Failure-to-file and failure-to-pay penalties
  • Certain estimated tax penalties and interest

Important considerations

  • Relief is not automatic—action is required to request a refund or abatement
  • In many cases, claims must be filed by July 10, 2026, though earlier deadlines may apply
  • The IRS has not formally adopted this position, and the decision may be subject to appeal
  • Filing a protective claim may be appropriate to preserve potential benefits while the law continues to develop

How we can help

We can assist in evaluating whether this development is relevant to your situation and, where appropriate, help prepare and file claims for refund or abatement. Feel free to contact your H2R CPA liaison and they will be happy to assist you with any questions.

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