COVID-Era IRS Penalty Refunds: What to Know Before the July 2026 Deadline

Millions of taxpayers may have an opportunity to recover penalties and interest paid to the IRS during the COVID-19 pandemic period. Recent court decisions have raised questions about whether the IRS had the authority to assess certain penalties while federal disaster relief provisions were in effect.

For some taxpayers, that could mean meaningful refunds. But there’s an important catch: Many taxpayers will likely need to act before July 10, 2026, to preserve their rights.

If you paid IRS penalties or interest tied to late filings or payments during the pandemic years, now is the time to review your records and determine whether you may qualify.

Why These Refund Opportunities Exist

The issue traces back to the federal disaster declaration issued in response to COVID-19. On Jan. 20, 2020, the federal government declared the pandemic a nationwide disaster emergency. Under Internal Revenue Code Section 7508A, the IRS has authority to postpone certain tax deadlines during federally declared disasters.

Two recent court decisions — Kwong v. United States and Abdo v. Commissioner — interpreted those disaster relief provisions broadly. The courts concluded that many tax deadlines may have been automatically postponed during the COVID disaster period, even for taxpayers who didn’t specifically request relief.

If those deadlines were legally postponed, penalties and interest tied to those deadlines may have been assessed improperly.

Which Penalties May Be Affected?

Not every IRS penalty qualifies for possible refunds. However, the rulings could affect several common penalty categories assessed between January 20, 2020, and July 10, 2023, including:

• Failure-to-file penalties
• Failure-to-pay penalties
• Estimated tax penalties
• Certain underpayment interest charges

Taxpayers who entered installment agreements during the pandemic may also want to review accrued interest and penalties carefully.

The potential refund amount varies widely. Some taxpayers may only qualify for modest recoveries, while others — especially business owners or high-income individuals with large balances due — could see substantially larger refund opportunities.

Who May Qualify for Refunds?

Eligibility depends on several factors, including the type of penalty assessed, when it was imposed and whether the taxpayer already received penalty relief.

Still, several groups may want to review their records closely.

Individual Taxpayers

Individuals who filed returns late or paid penalties during the COVID disaster period might qualify. This includes taxpayers who experienced disruptions tied to illness, business interruptions or delayed access to tax records during the pandemic.

Business Owners

Small and mid-sized businesses were heavily affected by IRS processing delays and pandemic-related disruptions. Businesses that incurred filing or payment penalties during this period may have refund opportunities available.

Partnerships and S corporations should also review penalties assessed on informational returns or estimated payments.

Estates and Trusts

Executors, trustees and fiduciaries who paid penalties during the affected period may also qualify for relief.

Taxpayers With Significant Interest Charges

Some taxpayers continued accruing interest while unresolved balances remained outstanding during the pandemic. Depending on timing and circumstances, portions of those charges may qualify for refunds as well.

What Taxpayers Need To Do

One of the most important details surrounding these refund opportunities is that many taxpayers may need to file claims proactively. The IRS is not expected to automatically issue refunds in most situations.

That means taxpayers should begin reviewing records now rather than waiting for additional IRS announcements.

Review IRS Account Transcripts

Start by gathering IRS notices, account transcripts and payment records covering the period from January 20, 2020, through July 10 2023.

The IRS provides online transcript access through its Online Account portal. Taxpayers can also request transcripts directly through the IRS transcript request system.

Carefully identify:

• Penalties assessed
• Interest charged
• Dates tied to the assessments
• Payments already made

File Form 843

Many taxpayers seeking refunds will likely need to submit IRS Form 843, Claim for Refund and Request for Abatement. This form allows taxpayers to request refunds or reductions of penalties and interest they believe were improperly assessed.

Currently, Form 843 generally must be submitted by mail rather than electronically.

Pay Attention to the Deadline

Timing matters here. Refund claims tied to these issues may be subject to a statute of limitations deadline of July 10, 2026.

Missing that deadline could permanently eliminate the ability to recover refunds, even if the taxpayer otherwise qualifies. Because processing delays are common, taxpayers should avoid waiting until the last minute to prepare and submit claims.

Why Some Advisors Recommend Filing Protective Claims

The legal landscape surrounding these refund opportunities is still developing. The federal government could continue appealing portions of the court decisions, and the IRS may eventually release additional guidance clarifying eligibility standards.

For that reason, some tax professionals recommend filing what’s commonly called a protective claim, which preserves a taxpayer’s right to pursue a refund while legal questions continue to develop.

The strategy may make sense for taxpayers with substantial potential refunds or situations involving uncertain eligibility.

What Could Jeopardize a Refund Claim?

While the opportunity may sound promising, several issues could create problems for taxpayers pursuing refunds.

Missing the Filing Deadline

This is likely the biggest risk. Refund statutes are strict; once the deadline expires, taxpayers generally lose the ability to recover funds.

Filing Incomplete Documentation

Missing records, incorrect calculations or incomplete forms can delay claims or trigger denials.

Detailed documentation matters. Taxpayers should maintain copies of:

• IRS notices
• Payment confirmations
• Filed tax returns
• Account transcripts
• Correspondence with the IRS

Assuming Refunds Will Be Automatic

Many taxpayers mistakenly believe the IRS will automatically identify qualifying accounts and issue payments. At this point, most experts believe proactive filing will be necessary in many situations.

Misunderstanding Which Penalties Qualify

Not all penalties imposed during the pandemic period automatically qualify for refunds. Eligibility may depend on:

• The specific type of tax involved
• The timing of the assessment
• Whether prior relief was already granted
• Applicable filing deadlines

That’s one reason why individualized review remains important.

Why This Matters for Taxpayers

For some taxpayers, these refund opportunities could be a meaningful source of cash flow recovery.

Business owners who accumulated penalties during difficult pandemic years might be able to recover funds that can now support growth, hiring or operations. Individual taxpayers may also benefit from reduced balances or direct refunds.

Equally important, this situation highlights how quickly tax rules and interpretations can change. Staying proactive and reviewing prior IRS assessments periodically can help you identify refund opportunities before deadlines expire.

Don’t Wait To Review Your Situation

The IRS hasn’t finalized all guidance surrounding COVID-era penalty refund claims. But the possibility of relief is significant enough that taxpayers should begin reviewing records now.

If you paid IRS penalties or interest during the pandemic period, it may be worth determining whether refund opportunities exist before the July 10 deadline arrives.

Working with an experienced tax advisor can help clarify eligibility, identify qualifying penalties and prepare refund claims properly.

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