The clock is ticking for COVID-era IRS penalty refunds

To borrow a phrase from Queen and David Bowie, some US taxpayers will be “Under Pressure” this summer. A landmark court decision may have just handed tens of millions of US taxpayers a path to significant refunds of penalties and interest assessed during the COVID-19 pandemic. But Uncle Sam will not be writing cheques unprompted. If you want your money back, you will need to act before July 10, 2026.

"Pushin’ down on me"

Throughout the pandemic, the IRS continued to assess failure-to-file penalties, failure-to-pay penalties, and underpayment interest against taxpayers whose obligations fell due between January 2020 and mid-2023. It offered some limited administrative relief, such as extending certain filing deadlines in narrow windows, but it did not treat the entire disaster period as a blanket postponement of all tax deadlines. Millions of taxpayers, accordingly, paid penalties and interest they may never have owed.

"Can’t we give ourselves one more chance?"

In Kwong v. United States (“Kwong”), 179 Fed. Cl. 382 (Nov. 2025), the US Court of Federal Claims held that IRC section 7508A(d) (the federal disaster postponement statute) extended all federal tax filing and payment deadlines that fell during the COVID-19 period. The Court held that the automatic extension runs from the COVID-19 disaster declaration date (January 20, 2020) to July 10, 2023 (60 days after the end of the declared disaster period). The IRS's own administrative relief covered only narrow slices of that window, but Kwong held that the statute covered all of it. 

And yet the real risk now is not the law but inaction. On April 30, 2026, a National Taxpayer Advocate issued a public alert urging affected taxpayers to file refund or abatement claims before the deadline, stating that tens of millions of taxpayers may be eligible for significant refunds. This relief is not automatic. The IRS will not adjust your filings on its own, and because it is currently appealing Kwong, it has no institutional incentive to publicise the opportunity. Without IRS or congressional action, the Taxpayer Advocate warned, outcomes may unfairly favour the "well advised" over the "unaware." 

Eligibility is unusually broad: because COVID-19 was a nationwide disaster, nearly all US taxpayers meet the geographic qualification requirements. Individuals, businesses, trusts, estates, and nonprofits who paid federal penalties or underpayment interest tied to deadlines falling within the January 20, 2020, to July 10, 2023, window may be entitled to relief, and even taxpayers whose original due dates preceded the disaster period may have partial relief arguments for penalties and interest that accrued within the window. International information return penalties on Forms 5471, 3520, or 8938 may also qualify, although the analysis is more complex. 

"This is our last dance"

Under normal rules, the IRC section 6511 limitations period for refund claims has already closed for most pandemic-era tax years. Kwong changes this: because the entire COVID disaster period must be disregarded when computing the limitations period, the effective deadline is pushed out to July 10, 2026 for most affected taxpayers. Miss that date, and the door closes even if the IRS later loses the appeal. 

Affected taxpayers can preserve their refund claims by timely filing IRS Form 843.

"Under pressure"

The IRS is currently appealing Kwong and is not issuing refunds on this basis. But the cost of filing is minimal, and the cost of not filing may be substantial. Filing a claim does not guarantee a refund, while not filing a claim will assure you do not receive one. For the "well advised," the path is clear. For the tens of millions who are not, the clock is ticking.

Title reference inspired by Queen & David Bowie's "Under Pressure" (1981), not the IRS.