Millions of Americans who paid IRS penalties during the COVID-19 years could still have a chance to recover that money, but the window to act is closing.
A recent court ruling has opened the door for taxpayers to challenge penalties tied to late tax filings and delayed payments made during the pandemic, that led IRS to release warnings ahead of a key July deadline. This is based on the federal court case, Kwong v. US, which found that emergency measures introduced during the pandemic effectively extended certain tax filing deadlines. Based on that interpretation, the ruling suggested that penalties imposed by the Internal Revenue Service during that period may not have been valid.
The decision affects a massive number of taxpayers. Between January 2020 and July 11, 2023, the IRS imposed more than 120 million penalties on individuals and businesses for filing returns late, missing tax payments, or failing to make estimated tax payments on time.
Although the case is still being contested, the National Taxpayer Advocate which is an independent organisation that oversees taxpayer issues within the IRS, says people should immediately review whether they qualify for relief. The office has stressed that refunds or penalty cancellations will not happen automatically for most taxpayers.
Court ruling sparks refund opportunity
The controversy stems from the argument that pandemic-era emergency declarations paused certain legal deadlines, including those related to taxes. The federal court agreed with that interpretation in the Kwong case, potentially making millions eligible to seek refunds or cancellation of penalties they were charged during the COVID period.
The taxpayer advocate’s office described the matter as “widespread and not limited to a small or specialized group of taxpayers.” However, the US government is continuing to fight the ruling. Ken Kies, assistant secretary at the Treasury Department, said the Trump administration believes the decision was incorrect. “We will continue to defend the statutory language as written,” he said in a statement.
Why experts say taxpayers should still file claims
Even though the legal battle is ongoing, tax professionals say waiting could be risky because the deadline to preserve refund rights is approaching. Alyssa Maloof Whatley, a director at Frost Law, said taxpayers should submit claims now instead of waiting for the final outcome in court. “Either it holds up or it doesn’t,” she noted of the ruling to AP. ”So by preserving your claim, you’re actually preserving your right to that money.” According to experts, taxpayers generally have until July 10 to file the necessary paperwork in order to keep their claims active.
Who may qualify for relief
The potential relief could apply to several groups of taxpayers. This includes people who filed tax returns late between Jan. 20, 2020, and July 11, 2023, as well as those who paid penalties related to delayed filing or payment during that time.
It may also apply to taxpayers who still owe those penalties but have not yet paid them, along with people who filed certain international information returns late. The National Taxpayer Advocate has encouraged taxpayers to review their IRS account transcripts online to identify any penalties assessed during the pandemic years.
The office warned that lower- and middle-income taxpayers could be especially vulnerable to missing out because many may not have professional tax advisers or may be unaware of the legal developments. “Many taxpayers affected by this issue have low and moderate incomes,” the taxpayer advocate told AP. “These taxpayers are less likely to have professional representation and to learn about complex legal developments like this one. As a result, they face a greater risk of missing the opportunity to claim refunds to which they may be entitled.”
What taxpayers need to do now
Taxpayers seeking refunds or penalty relief are being advised to complete IRS Form 843, which is available through the IRS website. The form must then be mailed to the IRS service center where the taxpayer would normally send a current-year return. Because the deadline is nearing, the taxpayer advocate urged people not to postpone reviewing their eligibility. “Taxpayers should not delay reviewing their situation and considering potential claims for refund and abatement,” the office said.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.