Kwong v. United States: Could You Be Entitled to an IRS Penalty and Interest Refund?

If you paid a late-filing penalty, a late-payment penalty, an estimated-tax penalty, or interest to the IRS anytime between early 2020 and the summer of 2023, there is a real chance the government collected money it was not supposed to. A recent court decision called Kwong v. United States has opened a narrow but genuine window to ask for that money back. The catch is timing: for most taxpayers, the door closes on July 10, 2026.

This article walks through what the Kwong decision actually says, who might qualify for an IRS penalty and interest refund, how the claim process works, and why acting before the deadline matters more than waiting for the dust to settle. As always, this is general information rather than advice tailored to your specific return — but it should help you decide whether a closer look is worth your time.

What is Kwong v. United States?

In November 2025, the U.S. Court of Federal Claims decided Kwong v. United States (No. 23-267, 179 Fed. Cl. 382). At the center of the case is a somewhat obscure corner of the tax code: Internal Revenue Code Section 7508A, which gives the federal government the power to postpone tax deadlines when there is a federally declared disaster.

We do not usually think of the COVID-19 pandemic as a "disaster" in the tax sense, but it was. In March 2020, the entire country was placed under a federal disaster declaration. That declaration is what triggered Section 7508A.

Here is where it gets interesting. The version of Section 7508A in effect during the pandemic — specifically subsection (d) — did not simply permit the IRS to push deadlines. The court in Kwong read it as requiring an automatic postponement of certain filing and payment deadlines for the entire length of the disaster period, plus a mandatory 60 additional days. Run the math on the COVID disaster timeline and you get an automatic postponement window that ran from January 20, 2020 through July 10, 2023.

The practical consequence is striking. If the law automatically postponed your deadline, then any failure-to-file penalty, failure-to-pay penalty, estimated-tax penalty, or interest the IRS charged you for being "late" during that window may have been assessed in error. And money assessed in error can, in principle, be refunded.

Why this matters for an IRS penalty and interest refund

For most of the pandemic, taxpayers and the IRS operated on the assumption that only specific, IRS-announced relief applied — things like the well-known extension of the 2019 filing deadline to July 15, 2020. Penalties and interest charged outside those announced windows were treated as valid, paid, and closed.

The Kwong court's reading flips that assumption. If the statute itself mandated a longer postponement than the IRS recognized, then a large universe of penalties and interest paid between 2020 and mid-2023 may have been collected when nothing was actually owed yet. That is the heart of the potential IRS penalty and interest refund opportunity: not a loophole, but an argument that the IRS misapplied its own deadline rules during the disaster period.

It is worth being clear-eyed here. The decision is favorable to taxpayers, but it is not the final word. The government filed an appeal, and the case is now headed to the U.S. Court of Appeals for the Federal Circuit. A reversal is entirely possible, and the ultimate outcome could take years. None of that, however, changes the urgency — and the reason for that brings us to the deadline.

The July 10, 2026 deadline you cannot ignore

Tax refund claims live and die by the statute of limitations. In general, you have three years from the date you filed a return (or two years from the date you paid the tax, whichever is later) to claim a refund. Once that window closes, even a perfectly valid claim is dead on arrival.

Because the Kwong postponement period ended on July 10, 2023, the three-year clock for many of the affected payments runs out on July 10, 2026. This is the single most important date in this entire conversation.

The reason this deadline is so unforgiving is that the appeal will almost certainly not be resolved by then. If you wait to see how the Federal Circuit rules before deciding whether to file, the statute of limitations will likely close first — and you will have surrendered your claim regardless of who eventually wins. This is exactly why tax professionals and even the National Taxpayer Advocate are urging eligible taxpayers to file a protective claim now: a claim filed before the deadline that preserves your right to a refund while the legal question plays out in the background.

In plain terms: filing protects your seat. Not filing means that if the taxpayers ultimately win on appeal, you still get nothing.

Who could be entitled to a refund?

Eligibility under the Kwong theory is unusually broad, and that is precisely because COVID-19 was a nationwide disaster rather than a localized one like a hurricane or wildfire. Geographically, nearly every U.S. taxpayer sits inside the affected zone.

You should take a closer look if, at any point for a deadline falling between January 20, 2020 and July 10, 2023, you paid any of the following:

• Failure-to-file penalties for filing a return late.

• Failure-to-pay penalties for paying a balance late.

• Estimated-tax penalties for underpaying quarterly estimates.

• Underpayment interest that accrued on a balance during that window.

This is not limited to individuals. Businesses, partnerships, corporations, trusts, estates, and nonprofits with obligations due during the window may all have a basis to file. Certain information-return penalties may also be in scope.

A realistic gut check: if you paid roughly $10,000 or more in combined penalties and interest across the 2020–2023 period, it is generally worth pulling your IRS account transcripts and having a professional review them before the deadline. Smaller amounts can still be worth claiming — the math is simple, and a few hundred dollars is still your money — but larger assessments are where the analysis clearly pays for itself.

How much could you actually recover? There is no single answer. Refund amounts swing widely based on the size of your original liability, how many tax years were affected, and which penalties and interest were charged. For some taxpayers it is a modest sum; for those with large balances and stacked penalties across multiple years, it can be substantial.

How to file a protective claim: Form 843

The vehicle for this claim is IRS Form 843, "Claim for Refund and Request for Abatement." A few practical points matter here, because the details can make or break the claim.

File a separate Form 843 for each tax year. Each year and each type of penalty or interest you are contesting should be identified specifically. Lumping everything onto one form invites confusion and delay.

Make the legal basis explicit. In the explanation section of the form (Line 7), cite IRC Section 7508A(d) and reference Kwong v. United States. Many practitioners are labeling the top of the form something like "Protective Refund Claim Pursuant to Kwong v. United States" so the IRS immediately understands what it is looking at. Include a short, plain statement explaining that the COVID-19 disaster period mandated postponement of your deadline through July 10, 2023, and that the penalties and interest therefore should not have accrued.

Form 843 must be filed on paper. There is no e-file path for this one. Because the filing date is what protects your claim against the statute of limitations, the National Taxpayer Advocate recommends sending it by certified mail, return receipt requested, so you have hard proof of when you mailed it if the IRS ever misplaces the document.

Expect to wait. Because the underlying legal question is on appeal, the IRS may hold or deny these claims rather than pay them out immediately. That is normal and is not a reason to skip filing. A denial can be appealed or pursued further; a claim never filed cannot be revived once the deadline passes.

What to do between now and July 10, 2026

The smartest move is a quick, methodical review rather than a scramble in early July. A sensible sequence looks like this. First, pull your IRS account transcripts for tax years 2019 through 2023, since those are the years most likely to contain payments tied to deadlines inside the postponement window. Second, identify every penalty and interest charge you actually paid during that period — refunds are only available on amounts you paid, not on penalties that were merely assessed and later abated. Third, calculate whether the dollars at stake justify the effort, keeping in mind that multiple small amounts across several years can add up. Finally, prepare and mail your Form 843 claims with enough lead time that certified mail is postmarked well before the deadline.

If reading your own transcripts feels like deciphering a foreign language, that is completely normal — the formatting is genuinely cryptic. This is one of those situations where a short conversation with a tax professional can quickly tell you whether you have a claim worth pursuing or not.

A few honest caveats

It would be a disservice to oversell this. The Kwong decision is a single trial-court ruling, it is being appealed, and the IRS has not issued formal guidance accepting its reasoning. The Federal Circuit could narrow or reverse it. Filing a protective claim does not guarantee a refund — it guarantees only that if the taxpayer-favorable interpretation survives, you will still be eligible to collect.

But that is exactly the point of a protective claim. The cost of filing is a few forms, some postage, and an hour or two of attention. The cost of not filing, if the decision holds, is permanently losing a refund you were entitled to. For most people sitting on meaningful COVID-era penalties and interest, that risk-reward math points clearly in one direction.

Don't leave the decision until the last week

The Kwong window is one of the more unusual refund opportunities to come out of the pandemic, and it rewards people who act early rather than those who wait for certainty. With the July 10, 2026 deadline approaching and IRS paper processing as slow as ever, the worst position to be in is realizing in late June that you have several years of transcripts to dig through and claims to prepare.

If you paid IRS penalties or interest between 2020 and 2023 and you are not sure whether the Kwong decision applies to you, this is the right moment to find out.

Schedule a consultation with TaxesZenPro and we will review your transcripts, calculate what may be recoverable, and prepare your protective Form 843 claims well ahead of the deadline — so that whatever the appeals court decides, your refund rights are fully protected. Reach out today at www.taxeszenpro.com before the window closes.