Taxpayers Face July 10 Deadline to File for Potential COVID-Era Penalty Refunds

WASHINGTON — A critical deadline is approaching for millions of U.S. individuals and businesses that may be eligible for refunds on tax penalties and interest assessed during the COVID-19 pandemic. Taxpayers have until July 10, 2026, to file a protective claim with the Internal Revenue Service to preserve their right to a potential refund, a move prompted by a significant federal court ruling that remains under appeal by the government.

The opportunity stems from the November 2025 decision in Kwong v. United States, where the U.S. Court of Federal Claims held that the federal disaster declaration for the COVID-19 pandemic automatically postponed all federal tax filing and payment deadlines. The court interpreted the disaster period as running from January 20, 2020, through July 10, 2023. This interpretation suggests that deadlines for tax years 2019 through 2022 fell within this protected window, potentially invalidating many penalties assessed for those years.

According to the National Taxpayer Advocate, tens of millions of taxpayers—including individuals, corporations, small businesses, trusts, and estates—could be affected if the court's reasoning is ultimately upheld. The potential refunds cover a range of common assessments, including failure-to-file penalties, failure-to-pay penalties, and penalties for underpayment of estimated taxes, along with any associated interest charges.

However, the IRS is actively appealing the Kwong decision to the U.S. Court of Appeals for the Federal Circuit. Consequently, the agency is not currently processing or issuing these refunds. The legal battle is expected to continue for some time, and the final outcome remains uncertain. This legal limbo is precisely why tax professionals are urging taxpayers to act before the July 10, 2026, deadline.

To safeguard their potential claim, taxpayers must file Form 843, Claim for Refund and Request for Abatement. This is considered a “protective claim,” a formal step that preserves a taxpayer’s right to a refund pending the outcome of a legal matter, such as the Kwong appeal. According to tax experts, failing to file this protective claim by the deadline will likely result in the forfeiture of any right to a refund, even if the courts ultimately rule against the IRS. The deadline is based on the standard three-year statute of limitations for refund claims, measured from the end of the disaster period identified by the court, July 10, 2023.

For small and mid-sized businesses, the financial stakes can be substantial. Penalties for late filing of business income tax returns, employment tax forms like Form 941, or late payment of tax liabilities can accumulate quickly. A refund of several years' worth of these penalties and interest could represent a significant cash recovery for companies that faced operational and financial challenges during the pandemic.

The process requires taxpayers or their advisors to review their IRS account transcripts for the affected period to identify any penalties or interest paid that could be subject to the Kwong ruling. The protective claim on Form 843 should then detail the specific penalties and the legal basis for the refund request, citing the court case.

While the relief is not automatic and the refunds are not guaranteed, the approaching deadline creates a time-sensitive decision point for business owners. The National Taxpayer Advocate has emphasized that taxpayers should not assume the IRS will automatically issue refunds if the agency loses its appeal. Proactive filing is the only way to ensure eligibility.

In our experience, the uncertainty of the IRS appeal should not deter businesses from filing a protective claim. The cost and effort of filing Form 843 are minimal compared to the potential financial recovery. Missing the July 10, 2026, deadline means permanently losing the right to this potential refund, regardless of the final court decision. We view this as a necessary, prudent step for any business that paid penalties during the covered period. It is a low-risk action that preserves a valuable option. Identifying the specific penalties and correctly articulating the basis for the claim requires a careful review of tax records, a core component of professional tax preparation and compliance. For business owners unsure of how to proceed, the experts at C&S Finance Group LLC can assess eligibility and manage the filing process at csfinancegroup.com.

All eyes are now on the U.S. Court of Appeals for the Federal Circuit as it considers the IRS's appeal. The court's future ruling will determine whether the potential refunds preserved by these protective claims will materialize into actual payments for millions of American taxpayers. Until then, the July 10 deadline remains the most important date for individuals and businesses hoping to benefit from the Kwong decision.