Tens of millions of US taxpayers may be owed money back from the IRS – and most of them have no idea.
A federal court ruling handed down late last year has set off a scramble to file claims before a July 10 deadline that, for many filers, will be the last chance to recover pandemic-era penalties and interest.
The case at the center of the issue, Kwong v. United States, was decided by Judge Molly Silfen of the US Court of Federal Claims in November. That ruling found that the tax code's automatic deadline postponement provisions – originally designed for natural disasters – applied to the entire Covid-19 federal disaster period, which ran from Jan. 20, 2020, through May 11, 2023, plus an additional 60 days.
Under that fresh interpretation, tax filing and payment deadlines were effectively paused for the full three-and-a-half years, meaning returns and payments made during that window were never actually late – and the IRS should not have assessed penalties or interest on them.
The IRS took the opposite view during the pandemic, enforcing deadlines as though the automatic extension law did not apply to an open-ended disaster declaration. President Trump declared the pandemic a national disaster beginning Jan. 20, 2020, without specifying when it would end.
The agency argued the statute required a defined end date to trigger the automatic extension. That position is now being contested in court, and the Justice Department is expected to appeal the Kwong decision.
National Taxpayer Advocate Erin Collins flagged the issue in a blog post Thursday, urging tax professionals and their clients to act before the opportunity closes.
"This issue is widespread and not limited to a small or specialized group of taxpayers," Collins wrote. "Impacted taxpayers represent a broad cross-section of the public, including individuals, small businesses, large corporations, estates, and trusts."
The scale of potential exposure is significant. In fiscal year 2022 alone, the IRS levied more than 12 million estimated-tax penalties and upward of 16 million failure-to-pay penalties, totaling more than $12 billion – though some were later reduced or removed.
Under the Kwong ruling, taxpayers may be entitled to refunds or abatements on three categories of charges: penalties for failing to file on time, interest that began accruing earlier than it should have, and penalties for failing to make estimated tax payments during the disaster period. According to Collins, some practitioners believe the relief could extend even to pre-pandemic delinquencies, though that interpretation remains contested and was not addressed directly by the court.
“I think it’s quite unusual and I think it’s potentially a large deal,” Washington tax lawyer Steve Rosenthal told the Wall Street Journal in February. “The IRS is really on its hind heels here.”
Major corporations have already moved on the ruling. Western Digital and Meta Platforms are among the companies that have cited the decision in their own ongoing disputes with the IRS. Tax attorneys have been filing claims for individual and business clients at a brisk pace.
Alyssa Whatley, a South Carolina-based attorney at Frost Law, said she is handling claims ranging from $600,000 for an individual to $2 million for a business, while also using a technology platform to assist smaller-dollar taxpayers.
"It kind of is a mad dash," she said in more recent comments to the Journal. "We don't want to miss this deadline for our taxpayers that have significant savings."
For most taxpayers, the deadline to file a refund or abatement claim is July 10 – three years from the extended deadline of July 10, 2023, which is itself the endpoint of the disaster period plus the 60-day extension. That cutoff covers claims related to tax years 2019 through 2022.
Filing requires submitting Form 843, Claim for Refund and Request for Abatement, by mail – there is currently no electronic filing option for this form.
Collins recommends taxpayers send claims via certified mail to establish a paper trail. Because the legal outcome remains uncertain, Collins also encouraged taxpayers to file what are known as protective claims, which preserve the right to a refund without requiring a precise dollar amount. A protective claim needs to identify the relevant tax years and describe the contingency – in this case, the pending resolution of the Kwong litigation.
Collins cautioned that a flood of paper submissions could create significant administrative strain at an already stretched IRS, potentially leading to processing delays and uneven treatment of claims.
She called on the agency to create an electronic submission portal, extend the filing deadline by six months, and consider providing systemwide relief so that taxpayers without professional representation are not left behind.
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