It is important for you to be aware that a recent federal court decision in Kwong v. United States (“Kwong”) has opened the door for certain taxpayers to pursue refunds of IRS-assessed interest and penalties, particularly in situations involving late payment or estimated tax underpayments during the period between 1/20/2020 and 7/11/2023. While the ruling is nuanced and fact-specific, it raises meaningful opportunities for taxpayers who previously paid amounts that may not have been properly assessed due to the Federal Government declaring Covid-19 a federal disaster.
According to the National Taxpayer Advocate, “[u]nder the reasoning of the Kwong decision, you may be entitled to a refund or abatement of certain amounts assessed during the COVID period, including:
- Penalties assessed for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments;
- Interest that began accruing earlier than it should have, or not at all; and
- Overpayment interest for the 2020–2023 disaster period.”
The IRS usually does not issue refunds or abate tax/penalty assessments while the law is uncertain. Currently the Kwong case is being litigated through the appeals process. However, based on the court decision, all refund claims will need to be filed by 7/10/2026. If you plan on filing, all paperwork will be due to TBC by June 30th in order to meet the deadline.
Given the uncertainty and the potential for further litigation or IRS guidance, taxpayers should consider filing a protective refund claim. A protective refund claim keeps your ability to claim a refund intact while the court case is still pending.
Contact your TBC advisor to assist with:
- Evaluating eligibility under the Kwong decision;
- Quantifying potential refund claims;
- Preparing and filing Form 843 protective claims;
- Monitoring developments and managing IRS correspondence.
Considering this development, taxpayers should consider conducting a targeted review of prior filings and payments made during the affected period to determine whether you may be eligible to file refund claims. Given the technical complexity and fact-dependent nature of the Kwong decision, a careful analysis of each taxpayer’s specific circumstances is important. Proactive evaluation now may help preserve potential refund opportunities before the 7/10/2026 refund claim due date.
If you are in need of assistance or are looking for more information on potential refund opportunities for IRS interest and penalties, please feel free to reach out to your trusted TBC advisor.