A new federal court ruling may mean significant refunds for millions of Americans who paid tax penalties and interest for pandemic-era lapses. But the window to claim those refunds closes by July 10, 2026 — and most taxpayers have no idea the opportunity exists.
The Kwong Case
When COVID-19 was officially declared a federal disaster under U.S. law, it triggered specific tax code protections. Under Internal Revenue Code Section 7508A, the IRS has the authority to postpone deadlines and provide relief from certain penalties during a federally declared disaster. That relief covers some of the most common penalties taxpayers face: failure to file a return, failure to pay taxes owed, and failure to make estimated tax payments.
Despite those statutory protections, the IRS continued assessing certain penalties and interest tied to filing and payment deadlines during the pandemic period. That practice ultimately led taxpayers to challenge whether the agency had properly applied Section 7508A.
In November 2025, the U.S. Court of Federal Claims handed down a significant ruling. Kwong v. United States determined that the IRS had been wrong to assess certain penalties and interest during the pandemic period. The court’s reasoning centered on a straightforward but powerful interpretation of the tax code: because COVID-19 was a federally declared disaster, the law didn’t only allow the IRS to postpone tax deadlines — it was required to.
According to the ruling, any deadline falling between January 20, 2020, and July 10, 2023, automatically shifted to July 11, 2023. As a result, penalties and interest calculated using the original deadlines may have been improperly imposed.
If the ruling stands, the impact could be substantial. Millions of taxpayers may have paid penalties that were, by law, never owed. The decision is not yet final, and the government still retains the right to appeal. Though the court’s ruling is still pending, filing a refund claim by the July 10, 2026 deadline is a sensible precaution.
Who Could Be Affected
The ruling affects a broad scope of taxpayers and tax issues. In an April 2026 blog post, the National Taxpayer Advocate (NTA) stated that tens of millions of taxpayers may potentially qualify not only for penalty relief, but also for interest that accrued on those penalties.
This is not limited to a narrow category of taxpayers. Individuals, small businesses, large corporations, estates, and trusts could all potentially be affected. Multiple tax types may also fall within the ruling’s reach, including income, employment, estate, gift, and excise taxes.
One notable exception involves Report of Foreign Bank and Financial Accounts (FBAR) filings. The federal disaster relief framework does not automatically apply to FBAR obligations because FBARs are governed by the Bank Secrecy Act rather than the Internal Revenue Code.
That said, taxpayers who filed FBARs late due to COVID-related disruptions may still use a “reasonable cause” defense, applying the Kwong case for support. Under these circumstances, it’s worthwhile to consult with a qualified tax professional.
How to File a Claim
Taxpayers looking to preserve their rights should file IRS Form 843, Claim for Refund and Request for Abatement, by July 10, 2026. Because the Kwong case is still being litigated, experts recommend filing what’s known as a “protective claim”.
A protective claim allows taxpayers to preserve a potential refund claim while the litigation is still unresolved. It doesn’t require a specific dollar amount; it simply puts the IRS on notice that you’re asserting a right to a refund pending the outcome of the case.
To be valid, the claim must identify the relevant tax years, describe the legal basis, and make clear what the contingency is — in this case, the resolution of Kwong. The NTA writing “Protective Refund Claim Pursuant to Kwong Case” across the top of the form.
Taxpayers who prefer can also file an amended return instead of Form 843, as long as it clearly identifies the applicable tax years and references the Kwong ruling as the basis for the claim. One practical note: currently Form 843 can only be submitted on paper, so taxpayers should retain a copy of their submission and proof of mailing.
What Happens Next
The IRS typically holds protective claims until the underlying legal issue has been resolved by the courts. Unfortunately, that process could take years. The delay is precisely why protective claims exist: they preserve a taxpayer’s rights and prevent the statute of limitations from expiring while the litigation plays out.
Once a final court decision is reached, taxpayers can supplement their filings by providing the exact dollar figures to complete their claim.
The Deadline
Waiting for final resolution of the Kwong case before filing is risky. The litigation may continue for years, but the statute of limitations will not wait.
Given the complexity involved, including varying tax types, interest computations, and potential international filing implications, it is critical to seek professional guidance. Even taxpayers who are unsure whether they qualify may want to evaluate their position and take action before the July 10, 2026, deadline passes.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
