COVID-19 Tax Penalty Refunds: Your Last Chance Before July 10, 2026

You might have money sitting with the IRS right now. If you paid penalties or interest during the COVID-19 pandemic—even if you thought you had no choice at the time—a recent court ruling called Kwong v. United States may entitle you to a refund. But there's a catch: you have to act fast. The deadline to preserve your claim is July 10, 2026, and it's already here.

This isn't automatic. The IRS isn't calling anyone to offer refunds. You have to file Form 843 yourself to claim the money you may be owed. Let's walk through what happened, who qualifies, and exactly how to file before time runs out.

The Kwong Court Decision: What Changed​

In November 2025, the U.S. Court of Federal Claims ruled in Kwong v. United States that the IRS misinterpreted federal disaster relief rules during the COVID-19 pandemic. Here's what it means:

The Core Issue Under Internal Revenue Code Section 7508A(d), when the President declares a disaster, federal tax filing and payment deadlines are automatically postponed for anyone in the disaster area. During COVID-19, the pandemic was declared a nationwide disaster from January 20, 2020, through July 10, 2023 (the end of the emergency declaration plus a 60-day extension).

The IRS, however, didn't suspend deadlines for the entire period the law said it should. The court agreed with the taxpayer in the Kwong case that the IRS had missed the mark—certain deadlines should have been postponed beyond what the IRS allowed.

What This Means for You If you paid penalties or interest on taxes because you missed a deadline during the January 20, 2020 through July 10, 2023 period, you may have a claim for a refund. This applies to taxes you filed late, payments you made late, or penalties the IRS assessed for missing deadlines during the pandemic.

Important: The Case Is Still Being Appealed The IRS has appealed the Kwong decision. The case isn't final. However, even if the Kwong ruling is later overturned, courts have sometimes allowed taxpayers who filed protective refund claims under similar circumstances to recover under other legal theories. Filing a claim now protects your position—if you wait and the court eventually rules in your favor, you won't have a claim to file.

Who Actually Qualifies​

You may qualify for relief if:

1. Your principal place of business was in the United States during the disaster period (which covers all 50 states for COVID-19, so most U.S. businesses are covered)
2. You were assessed penalties or interest related to filing or payment deadlines between January 20, 2020, and July 10, 2023
3. You paid the penalty or interest, even if you later appealed or got a partial abatement
4. A deadline-related penalty applies, not an accuracy-related penalty (explained below)

Which Penalties Count?​

The relief covers deadline-related penalties only. These include:

• Failure to file penalties (for missing the original filing deadline)
• Failure to pay penalties (for paying taxes late)
• Underpayment interest (interest charged on late tax payments)
• Late filing penalties on other federal returns you were required to file (like 1099s, W-2s, or information returns for international transactions)

The relief does not cover:

• Accuracy-related penalties (for understating tax liability, even if unintentional)
• Fraud penalties
• Penalties for illegal activity

If you have a mix of penalties, you can claim relief for the deadline-related ones while the other penalties remain in place.

The July 10, 2026 Deadline: Why It Matters​

The deadline applies differently depending on your tax situation:

• If your deadline fell between January 20, 2020, and July 10, 2023: You have until July 10, 2026, to file a protective claim
• The IRS is not issuing refunds automatically—you must file Form 843 yourself
• Missing the deadline means losing your claim permanently, even if Kwong is upheld and you become eligible years from now

This is a hard deadline. The IRS doesn't extend it except in very limited circumstances (natural disaster, serious illness, or if the IRS itself made an error in its published guidance). Don't assume a few days late won't hurt—it will.

How to File Form 843: Step-by-Step​

Filing for your refund requires Form 843, Claim for Refund and Request for Abatement. Here's the process:

Step 1: Gather Your Tax Documents​

You'll need:

• A copy of the original tax return(s) affected
• Any IRS notices or assessments showing the penalty or interest charged
• Records proving you paid the amount (bank statements, payment confirmations)
• Dates of the missed deadlines and dates you eventually filed or paid

Step 2: Determine Your Total Claim Amount​

Add up all penalties and interest related to COVID-era missed deadlines:

• Each failure-to-file penalty
• Each failure-to-pay penalty
• All related interest that accrued during the suspension period

Step 3: Complete Form 843​

Form 843 asks for:

• Your tax ID (SSN for sole proprietors, EIN for business entities)
• Tax years affected
• The specific penalties and interest amounts being claimed
• A brief explanation of why you're entitled to relief

Critical instruction: Write clearly on the top of the form: "Protective Claim Pursuant to Kwong v. United States" or similar language. This tells the IRS why you're filing and helps ensure your claim is processed correctly.

Step 4: File Your Claim​

Option A: Online (New as of July 2026) The IRS now allows electronic filing through IRS.gov if you have an IRS Online Account, but only for claims involving fully paid interest and penalties. Check IRS.gov to see if you can file online.

Option B: By Mail (Safest Option) Mail your Form 843 to:

Ogden IRS Service Center
Attn: Refunds Processing
1160 West 1200 South
Ogden, UT 84404

Always use certified mail with return receipt so you have proof the IRS received your claim. Keep copies for your records.

Step 5: Follow Up and Wait​

After filing:

• The IRS may request additional documentation; respond promptly
• Processing times vary; claims can take 6–18 months to resolve
• If denied, you can file a lawsuit in federal court, but this is expensive and slow

Real-World Example: How This Works​

Let's say you run a small consulting business as an S-corporation. You missed your quarterly estimated tax payment deadline in April 2020 (during lockdown chaos) and didn't realize it until June. You made the payment then, but the IRS assessed a $500 failure-to-pay penalty plus $120 in interest.

Under Kwong, that April deadline should have been suspended. You can now file Form 843:

• Claim: $500 penalty + $120 interest = $620 total
• Basis: The April 2020 deadline falls under Section 7508A(d) suspension per Kwong
• You got your $620 back

If you had three missed deadlines and multiple penalties, you'd claim all of them on a single Form 843. The IRS groups them for processing.

Common Mistakes to Avoid​

1. Not filing a claim at all: Refunds are not automatic. No claim = no refund, even if Kwong is upheld
2. Missing the July 10 deadline: This is firm. File by July 9 if you're unsure
3. Claiming penalties that don't qualify: Accuracy penalties, fraud, or non-tax deadlines won't work—focus on failure-to-file, failure-to-pay, and underpayment interest only
4. Filing without documentation: The IRS will ask for proof that you paid. Have bank statements and payment confirmations ready
5. Confusing this with the IRS's voluntary disclosure practice: Kwong refund claims are different from voluntary disclosures. Don't try to combine them

What Happens If the IRS Denies Your Claim​

The IRS may deny your Form 843 if:

• The Kwong ruling is reversed on appeal (though you'd then be in the same position as everyone else who filed protective claims)
• The penalty didn't actually relate to a missed deadline
• You filed after July 10, 2026

If denied, you can:

• File a lawsuit in federal court (expensive; requires an attorney)
• Appeal within the IRS (sometimes possible, but slow)
• Accept the denial (most small businesses do this)

Given the appeal is ongoing and the outcome is uncertain, many small business owners are hedging their bets by filing a protective claim now. It costs little to file and preserves your rights.

Why This Matters for Your Bookkeeping​

If you get a refund, you'll receive it as a check or credit to your IRS account. Accounting for it correctly is important:

• Record the refund receipt: In your tax records, note that the refund was received under Kwong
• Don't double-count deductions: The penalty you originally deducted (if you did) doesn't change; the refund is a separate income event
• Consult your CPA for the tax treatment: Depending on when the original penalty was assessed, the refund itself may have tax implications (usually minor, but verify)

Keeping clear records of penalties paid, their dates, and any subsequent refunds helps you prove your case if audited and ensures your books stay audit-proof.

Simplify Your Financial Management​

As you navigate pandemic relief claims and sort through years of accumulated penalties, maintaining clear financial records is essential. Small business owners who kept organized books during the pandemic—with penalties and payments clearly tracked—are finding it much easier to file Kwong claims with confidence.

Beancount.io provides plain-text accounting that gives you complete transparency into every penalty, interest charge, and payment your business has made. Unlike black-box accounting software that hides penalties in summaries, Beancount lets you audit your entire history with simple text queries. That clarity is invaluable when filing for refunds under rules like Kwong, where documentation and proof matter. Get started for free and see why developers and finance professionals are switching to plain-text accounting to track exactly what they've paid.

The Bottom Line​

The Kwong ruling may entitle you to a five- or six-figure refund—or it may entitle you to nothing if the IRS successfully appeals. But you won't know without filing Form 843. The deadline is July 10, 2026. File your protective claim now, keep your documentation, and be ready to pursue the refund if the case is resolved in your favor. Missing this deadline means missing the chance to recover money the government may owe you.