By: Anthony Mona
For many individuals and business owners, the COVID-19 pandemic created unprecedented financial and administrative challenges. In response, the federal government issued disaster declarations and temporary tax relief measures designed to provide flexibility during a period of significant disruption.
Now, a recent federal court decision has raised questions about whether some taxpayers may have been assessed IRS penalties and interest that should not have been charged during portions of the COVID-19 disaster period. While the issue remains under appeal and the legal outcome is uncertain, taxpayers may want to evaluate whether they should take action before an important deadline arrives.
Here are seven things to know.
A Recent Court Decision Has Created a Potential Refund Opportunity
In Kwong v. United States (2025), the U.S. Court of Federal Claims examined Internal Revenue Code Section 7508A(d), which governs the postponement of certain tax deadlines during federally declared disasters.
The court concluded that the COVID-19 federal disaster declaration may have automatically extended certain filing and payment deadlines for a much longer period than the IRS originally recognized. According to the court’s interpretation, the relevant postponement period could have extended from January 20, 2020, through July 10, 2023.2.
The Decision Could Affect Millions of Taxpayers
This issue is not limited to a small group of taxpayers.
The National Taxpayer Advocate has publicly stated that tens of millions of taxpayers may be affected if the court’s interpretation ultimately prevails. Potentially impacted taxpayers include:
- Individual taxpayers
- Business owners
- Partnerships
- Corporations
- Trusts and estates
- Nonprofit organizations
The potential impact spans a wide range of federal tax filings and payment obligations.
Several Types of IRS Charges Could Be Involved
If the court’s reasoning is ultimately upheld, taxpayers may have grounds to seek refunds or abatements related to:
- Failure-to-file penalties
- Failure-to-pay penalties
- Certain estimated tax penalties
- Underpayment interest
- Interest charged on certain penalties
Whether a taxpayer qualifies will depend on their specific circumstances, filing history, and the timing of any assessed penalties or interest.
The Government Is Appealing the Decision
It is important to understand that this issue is not settled law.
The IRS has appealed the Kwong decision to the U.S. Court of Appeals for the Federal Circuit, and future court rulings could affirm, modify, or overturn portions of the decision. No widespread refund program has been announced, and taxpayers should not assume that refunds will automatically be issued.
A Key Deadline Is Approaching – For many taxpayers, July 10, 2026, may represent an important deadline.
Tax professionals across the country are discussing the use of “protective refund claims” as a way to preserve potential rights while the litigation continues. A protective claim generally allows a taxpayer to maintain a potential refund position while a legal issue remains unresolved.
Missing a filing deadline could limit a taxpayer’s ability to pursue a refund later, even if future courts ultimately uphold the decision.
Form 843 Is Receiving Significant Attention
Many tax practitioners are recommending that potentially affected taxpayers discuss IRS Form 843, Claim for Refund and Request for Abatement, with their tax advisor.
Form 843 is commonly used to request refunds of certain penalties and interest. According to guidance discussed by the National Taxpayer Advocate, taxpayers considering a protective claim may need to file before July 10, 2026, to preserve potential rights.
Because every situation is unique, taxpayers should consult a qualified tax professional before filing any claim.
Business Owners May Have More Exposure Than They Realize
Business owners often encounter multiple filing deadlines, payroll obligations, estimated tax requirements, and information reporting requirements.
As a result, business entities may have accumulated penalty assessments or interest charges during the COVID-era disaster period without realizing those amounts could potentially be affected by ongoing litigation.
A review of historical IRS transcripts and prior tax filings may help identify whether further discussion with a tax professional is warranted.
What Should Taxpayers Do Next?
At this stage, the most important takeaway is awareness.
The legal issues surrounding the Kwong decision remain unresolved, and there is no guarantee that taxpayers will ultimately receive refunds. However, for some individuals and business owners, the approaching July 10, 2026 deadline may warrant a conversation with their tax advisor to determine whether a protective claim should be considered.
At Spartan Wealth Management, we believe proactive planning often creates more options than waiting until deadlines have passed. If you have questions about how tax developments may fit into your broader financial plan, retirement strategy, business planning efforts, or wealth management objectives, we encourage you to speak with your Spartan Advisor.
Sources:
Taxpayer Advocate Service, “Tens of Millions of Taxpayers May Be Eligible for Refunds,” April 2026 https://www.taxpayeradvocate.irs.gov/news/nta-blog/tens-of-millions-of-taxpayers-may-be-eligible-for-significant-tax-refunds/2026/04/
Kwong v. United States discussion and appeal coverage in The Tax Adviser, May 2026 https://www.taxpayeradvocate.irs.gov/news/nta-blog/beyond-penalties-and-interest-how-kwong-may-affect-missed-tax-refunds-part-iv/2026/05/
National Taxpayer Advocate blog series regarding refund claims and COVID-era deadline extensions, May 2026 https://www.taxpayeradvocate.irs.gov/news/nta-blog/beyond-penalties-and-interest-how-kwong-may-affect-missed-tax-refunds-part-iv/2026/05/
Analysis of filing deadlines and refund claims related to IRC §7508A(d), May 2026 https://www.foxrothschild.com/publications/pandemic-era-refund-opportunity-deadline-is-quickly-approaching
Disclosures:
This article is provided for educational and informational purposes only and should not be construed as tax, legal, or accounting advice. Spartan Wealth Management does not provide legal or tax advice. Individuals should consult with qualified tax and legal professionals regarding their specific circumstances before taking any action.
Advisors associated with Spartan Wealth Management may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Spartan Wealth Management; or (2) solely investment advisor representatives of Spartan Wealth Management, and not affiliated with LPL Financial. Investment advice offered through Spartan Wealth Management, a registered investment advisor and separate entity from LPL Financial. Registration does not constitute an endorsement from the commission, nor does it imply a certain level of skill or ability.
