Don’t Miss a Tax Refund the IRS May Already Owe You
If your business paid more than federal IRS penalties for a single tax year or tax period, the account deserves a closer look.
A recent federal court decision, Kwong v. United States, may give certain taxpayers a path to recover COVID-era IRS penalties and related interest. The opportunity is not automatic. It is also not open-ended. For many taxpayers, the protective claim deadline is July 10, 2026.
We only focus on cases where the taxpayer owed more than $5,000 in federal penalties per year or tax period, before counting the interest charged on those penalties.
Why This Matters
During the pandemic, many profitable businesses and high-income owners filed late, paid late, or missed estimated tax deadlines. The IRS often assessed penalties anyway.
Those penalties can be substantial. Common examples include:
The interest matters. A $40,000 penalty may have produced thousands more in interest. A proper review should calculate both the penalty and the interest tied to it.
What Kwong Changed
The Kwong court interpreted federal disaster-relief rules as automatically postponing certain tax filing and payment deadlines during the COVID disaster period, running from January 20, 2020 through July 10, 2023.
That creates a simple but powerful question:
If the deadline was legally postponed, should the IRS have charged a penalty for being late?
For taxpayers with small penalties, the answer may not justify engagin our firm. but relief may still be available - consult your tax advisors. For taxpayers with $25,000, $50,000, or six figures in penalties, across multiple years it may be cost effective to retain us. Contact us for an assessment if you paid or were assessed over $25 in combined penalties per year.
Who Should Review Their IRS Transcripts
You may be a candidate if you or your business had:
- More than $5,000 in IRS penalties for one year or tax period.
- Penalties tied to 2019, 2020, 2021, 2022 or other COVID-era filing or payment deadlines.
- IRS interest charged on those penalties.
- A paid and/or assessed penalty that may support a refund claim.
- An unpaid penalty that may support an abatement request.
The key is not how much tax you owed. The key is how much the IRS charged in penalties, plus interest on those penalties.
The Deadline Problem
The IRS is not expected to simply send checks to affected taxpayers. Claims generally must be filed.
For many taxpayers, the critical date is July 10, 2026. Missing that date may mean losing the claim, even if the law later moves in the taxpayer’s favor.
The case is not risk-free. The government may continue to challenge the ruling, and a protective claim does not guarantee payment. But not filing may leave the money permanently with the IRS.
What We Review
A meaningful review starts with IRS account transcripts, or prior tax returns. We look for:
- The tax year or period involved.
- The exact penalty type.
- Whether the penalty exceeded $5,000 per year or period.
- How much interest accrued on that penalty.
- Whether the amount was paid or remains outstanding.
- Whether a refund claim, protective claim, or abatement request is appropriate.
The Bottom Line
Large IRS penalties should not be treated as sunk costs without review.
If you paid or were assessed more than $5,000 in federal IRS penalties for a single tax year or tax period, the Kwong decision may create a refund or abatement opportunity. The larger the penalty, the more important the transcript review becomes.
The deadline is approaching. The IRS may already have money that belongs back in your business.
Important Notice
This article is for general informational purposes only and does not constitute tax, legal, investment, accounting, or financial advice. Tax law is complex and fact-specific, and future legislative or regulatory changes may affect the analysis. Taxpayers should consult qualified tax and/or legal advisors before relying on any of the above information.
Taxpayers should approach this issue carefully. Kwong should not be treated as a settled conclusion that taxpayers are entitled to refunds or abatements. The decision arose in a specific procedural context involving the timeliness of the taxpayer’s refund suit under IRC §6532(a). Broader application to refund claims, penalty abatements, underpayment interest, overpayment interest, or other COVID-era penalty and interest issues remains developing and may depend on taxpayer-specific facts, IRS guidance, future litigation, or appellate activity.
Public commentary, including recent National Taxpayer Advocate materials has raised the possibility that some taxpayers may need to file a refund claim, abatement request, or protective claim to preserve potential rights. For many taxpayers, July 10, 2026, may be an important date, although the applicable deadline may vary based on the taxpayer’s specific facts, the type of claim, the tax period involved, assessment and payment dates, prior IRS action, and applicable limitation rules.
