IRS deadline looms: Millions of US taxpayers could claim COVID-era penalty refunds by July 10

A recent federal court ruling has opened the door for millions of Americans to potentially recover penalties and interest collected by the Internal Revenue Service (IRS) during the COVID-19 pandemic.

Even as many taxpayers continue waiting for refunds from the latest tax season, others could still be entitled to money tied to tax years dating back to 2020. The decision could also benefit some individuals who may have missed refund opportunities for tax years between 2019 and 2022.

However, eligible taxpayers must act before the deadline. In many cases, refund or protective claims must be submitted by 10 July 2026 to preserve the right to seek relief.

The ruling came in Kwong vs the United States, where a federal court concluded that the IRS improperly imposed certain interest charges between 2020 and 2023.

According to the court's interpretation, federal tax filing and payment deadlines should have been extended throughout the federally recognised COVID-19 emergency, along with an additional 60 days after the emergency ended.

If that interpretation ultimately stands, filing deadlines for tax years 2019 through 2022 would effectively shift to 10 July 2023, reflecting the official end of the national COVID-19 emergency on 11 May 2023.

Because taxpayers generally have three years from the applicable filing deadline to request unpaid refunds, many affected individuals could have until 10 July 2026 to submit refund claims.

Taxpayers can review their IRS online accounts to determine whether penalties or interest were assessed between 20 January 2020 and 11 July 2023. Those who believe they qualify may file IRS Form 843 and indicate that the request is being submitted as a protective claim.

Why is 10 July deadline important?

Under current tax rules, refund claims generally must be filed within the later of three years after a tax return was filed or two years after the tax, penalty, or interest was paid.

If the legal reasoning in Kwong is ultimately upheld and affected tax obligations are treated as due on 10 July 2023, then 10 July 2026 becomes a key deadline for filing refund requests or protective claims.

A protective claim allows taxpayers to preserve their ability to seek a refund while the legal issues continue to be resolved. Although filing such a claim does not guarantee that a refund will be issued, failing to file before the deadline could permanently eliminate the opportunity to recover money if the courts ultimately rule in the taxpayers’ favour.

Tax professionals have also warned that individuals without legal representation, lower-income taxpayers, and those who face challenges obtaining IRS records or professional assistance may be especially vulnerable to missing refunds simply because they are unaware of the filing deadline.

Who may be eligible to review their tax records?

Taxpayers should consider reviewing their IRS records if they:

• Filed a tax return during the COVID-19 disaster relief period and were charged penalties or interest connected to that return.
• Paid, or continue to owe, penalties or interest for filing or paying taxes late during the pandemic relief period.
• Submitted international information returns after their original deadlines.
• Believe they may have missed a refund, refundable tax credit, withholding credit, estimated tax payment credit, or another tax benefit related to tax years affected by the COVID-19 postponement.

The first step is to obtain and review IRS tax account transcripts. Taxpayers should look for penalties, interest charges, payments, refund activity, or other account transactions recorded between 20 January 2020 and 10 July 2023, as well as activity involving tax years that may have been impacted by the pandemic-related deadline extensions.