If your business paid late-filing or late-payment penalties to the IRS during the COVID-19 pandemic, a landmark court case could mean a massive refund is heading your way.
In late 2025, the U.S. Court of Federal Claims handed down a major victory for taxpayers in Kwong v. United States. The court ruled that the IRS improperly assessed billions of dollars in penalties and interest during the pandemic.
Because of how this ruling impacts the statute of limitations, affected businesses and individuals have a strict window to act, with a major deadline looming on July 10, 2026. Here is what you need to know to find out if your business is owed money:
When the COVID-19 pandemic hit, the federal government declared a nationwide disaster. Under Internal Revenue Code (IRC) § 7508A, the IRS has the legal authority to postpone tax deadlines for those affected by a federally declared disaster.
During the pandemic, the IRS offered piecemeal, temporary relief (such as extending the 2020 filing deadline by a few weeks). However, outside of those small windows, the IRS’s automated systems kept churning out standard late penalties and interest for businesses and individuals who filed or paid late.
The plaintiffs in the Kwong case argued that the IRS completely botched the law. They pointed to a 2019 amendment (IRC § 7508A(d)) stating that a mandatory, automatic suspension of time must apply to all qualified taxpayers for the entire duration of a federally declared disaster.
The court agreed with the taxpayers, ruling that the true, legally effective deadline for federal tax obligations, falling within the disaster window, was pushed back. Therefore, the IRS lacked the legal authority to charge late fees during that time.
According to the Kwong ruling, the mandatory disaster period ran from January 20, 2020 through July 10, 2023, the latter time period signifying the formal end of the COVID-19 emergency plus a statutory 60-day buffer.
If your business paid any of the following federal tax charges, accrued during the aforementioned three-year window, you may be eligible for a full refund or abatement:
- Failure-to-File (FTF) penalties
- Failure-to-Pay (FTP) penalties
- Underpayment interest and late-payment interest
- Estimated tax penalties (IRC § 6654)
Why You Must Act Before July 10, 2026
Normally, taxpayers only have a limited three-year window from filing a return, or two years from paying a tax, to claim a refund.
However, because the Kwong decision dictates that the entire 2020–2023 disaster window must be “disregarded” when calculating these timelines, the clock was effectively paused. For the vast majority of affected taxpayers, the new, absolute deadline to file a refund claim is July 10, 2026.
What Should Your Business Do Next?
The federal government still has the right to appeal the Kwong decision to a higher court. Because the litigation isn’t entirely finalized, tax professionals are strongly advising businesses not to sit on their hands and wait.
Instead, companies are filing “protective refund claims” using IRS Form 843.
Filing a protective claim allows you to plant your flag in the ground before the July 10, 2026 deadline. It formally preserves your right to a refund so that when the final legal appeals are cleared, the IRS is legally obligated to process your payout.
The Bottom Line: Check your records between January 20, 2020 through July 10, 2023. If you paid any penalties or interest to the IRS, reach out to your CPA or PayMaster immediately to file a protective claim before the clock runs out next month.
