New Court Ruling: The IRS May Owe You a Refund for 2020–2023 Tax Penalties
Some taxpayers may still be able to claim pandemic-era penalties and interest. But eligibility is limited and timing matters.
A little-known IRS rule and an interesting court case could mean some taxpayers get back penalties and interest they paid during the pandemic years.
Headlines make it sound huge, but the reality is more targeted, not automatic, and in flux at the moment. And, of course, most tax relief comes with deadlines.
So, the question is, are you eligible, and if so, what should you do to claim your money? Here's more of what you need to know.
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Could you get a pandemic IRS refund soon?
Let's start with a little background. When COVID hit, the federal government declared a national emergency that ran from January 20, 2020, through May 11, 2023.
During that time, the IRS used its disaster authority under Section 7508A of the U.S. Code to push back various filing and payment deadlines, including due dates for 2019, 2020, and 2021 federal income tax returns.
So what? Well, a recent case in the U.S. Court of Federal Claims, Kwong v. United States, is now testing how those pandemic extensions should be applied.
In that case, the court sided with a taxpayer’s argument that some pandemic-era tax deadlines may have lasted longer than the IRS treated them. That means potentially into mid-2023, including an extra 60 days after the national emergency ended.
If that ruling ultimately holds, it could mean the IRS charged some penalties and interest too early, opening the door for refund claims.
Who might get an IRS pandemic penalty refund
Despite the big numbers being thrown around, not everyone who paid a fee to the IRS during the pandemic would be in line for a refund. The focus is generally on individuals and businesses that:
- Filed or paid late during the pandemic period and were charged penalties or interest
- Paid common IRS penalties, like late filing, late payment, or underpaying estimated taxes
- In some cases, paid additional interest tied to those charges
If you were under an IRS audit, set up a payment plan with the tax agency, or had other collection activity during that period, some of the penalties embedded in those balances could also be in play.
For people with large balances or multiple years at issue, the potential refunds could reportedly be sizable. But keep in mind, this situation is in flux and will ultimately depend on how the litigation plays out.
How the Kwong lawsuit differs from earlier IRS penalty relief
It's important to note that this situation is separate from the automatic penalty relief the IRS already rolled out for certain 2019–2021 returns.
As Kiplinger reported, in that earlier program, the IRS waived or refunded specific penalties for eligible taxpayers and issued credits and refunds on its own. (Eligible taxpayers didn't have to file special paperwork.)
This legal situation is also different from recent announcements about 2022 tax returns and refunds.
Essentially, the IRS is warning that millions who haven't filed their 2022 returns risk missing out on $1.2 billion in unclaimed tax refunds, including overpaid taxes and tax credits like the Earned Income Tax Credit (EITC). The deadline for those who did not file returns back in 2022 is April 15, 2026.
- This time, the refund opportunity stems from a court ruling, not an official, broad IRS policy. That means the tax agency isn't automatically reviewing accounts and issuing checks.
- Instead, many industry experts believe that taxpayers who may be affected will generally need to file a refund claim to preserve their rights while the legal issues are resolved.
- Some note that filing such a "protective claim" now would essentially freeze the statute of limitations for that taxpayer.
IRS pandemic penalty relief deadline
Tax refund claims come with strict time limits, usually based on when a return was filed or when the tax was paid. Because these penalties and interest date back to the pandemic years, some windows on 2020 and 2021 liabilities could start closing as soon as 2026.
As a result, some practitioners are treating mid‑2026 (i.e., July 10, 2026) as a practical "deadline" for many potential claims under this development.
There’s another catch. It wouldn't be surprising if the IRS contests the court’s reading of Section 7508A through an appeal. So, refunds under the Kwong legal theory aren't guaranteed.
How to check if you might qualify
If you’re wondering whether you’re one of the “millions” being talked about, the best place to start is your own IRS account history. You can:
- Log in to your IRS online account or pull account transcripts and look for penalties and interest posted between 2020 and mid‑2023.
- Flag any charges for late filing, late payment, underpaid estimated taxes, or interest on slow‑moving refunds tied to those years.
- Consult with a tax professional whether those items might fall under the extended‑deadline interpretation and whether it’s worth filing a refund request for penalties and interest (Form 843) in your situation.
Even if the court ultimately narrows who qualifies, this situation underscores how much timing matters in the U.S. tax system.
And for those who struggled through the pandemic and then paid extra for missed shifting deadlines, this might be a rare chance to get some of that money back.
Read More
- IRS Tax Refund Schedule: When Will Your Check Arrive?
- How New IRS Rules Could Delay or Freeze Your Refund
- Haven't Filed Yet? 8 Steps to Take Now to Prepare
