Can I Get My IRS Penalties Refunded From COVID? What to Know About the Kwong Case

If you paid IRS penalties during the COVID pandemic between January 20, 2020, and July 10, 2023, there may be an opportunity to preserve your right to seek a refund.

This is not about penalties from your 2024, 2025, or 2026 tax returns.

Instead, it relates to certain penalties and interest that may have been assessed during the federal COVID disaster period and a federal court case called Kwong v. United States.

The case is still being litigated, which means there is no guarantee refunds will ultimately be allowed. However, for some taxpayers, filing a protective claim before July 10, 2026 may preserve their rights if the courts ultimately rule in taxpayers' favor.

Who Should Keep Reading?

This information may be relevant if:

• You paid significant IRS penalties or interest between January 20, 2020, and July 10, 2023.

• You received penalties for filing or paying taxes late during the COVID years.

• You paid estimated tax penalties during that time.

• Your business paid payroll tax penalties during the COVID period.

This information likely does not apply if:

• Your penalties relate only to 2024, 2025, or 2026 tax filings.

• You did not pay IRS penalties during the COVID disaster period.

What Is the Kwong Case?

The Kwong case centers around whether certain federal tax deadlines should have been automatically extended during the federal COVID disaster declaration.

A federal court has ruled that those extended deadlines may have affected when certain penalties and interest should have been assessed. The case is currently being appealed, so there is no final answer yet.

If the courts ultimately uphold that interpretation, some taxpayers who paid penalties and related interest during the affected period could be eligible for refunds.

Potential refunds may include:

• Failure-to-file penalties

• Failure-to-pay penalties

• Estimated tax penalties

• Certain related interest charges

• Some business and payroll tax penalties

Individuals, businesses, estates, trusts, and payroll tax filers could all potentially be affected.

Why the July 10, 2026 Deadline Matters

Even though the case has not been finalized, many taxpayers may want to file what's known as a protective claim before July 10, 2026.

A protective claim does not guarantee you will receive a refund.

Instead, it preserves your right to seek one if the courts ultimately rule in taxpayers' favor. Missing the filing deadline could mean losing that opportunity altogether.

Because of the approaching deadline, now is the time to determine whether it's worth taking that step.

How Do You Know If You Qualify?

Every taxpayer's situation is different.

Determining whether filing a claim makes sense requires reviewing:

• IRS account transcripts

• Penalties that were assessed

• Payment history

• The tax years involved

• The types of penalties that were charged

Not everyone will qualify, and not everyone should file a claim.

That's why a professional review is important.

Our Approach at Perfectly Balanced

At Perfectly Balanced, our goal has always been simple:

We want our clients to pay their fair share, and not a dollar more.

That's exactly why we're sharing this information.

We don't believe everyone should automatically file a claim.

We also don't want someone to miss an opportunity simply because they never knew it existed.

Because we opened our doors in the fall of 2021, we did not prepare every return that could potentially be affected by this situation. There is simply no way for us to know every taxpayer who may have paid penalties during the COVID years.

If you believe you paid significant IRS penalties during that time, we encourage you to start the conversation with your tax professional. If we're your tax advisor, we're happy to help. If another professional prepares your returns, we encourage you to reach out to them as well.

Our goal is simply to help taxpayers make informed decisions before an important deadline passes.

How Perfectly Balanced Can Help

We offer a flat-rate $250 eligibility review to determine whether filing a protective claim appears appropriate based on your specific situation. If a claim should be filed, preparation of IRS Form 843 or other applicable protective claim forms may require a separate preparation fee.

We'll walk you through your options, explain what we find, and help you determine whether moving forward makes sense.

Don't Wait Until It's Too Late

If you remember paying substantial IRS penalties during the COVID years, don't assume there's nothing you can do.

There may be an opportunity to preserve your rights before July 10, 2026, but that window won't stay open forever.

Whether you're an individual taxpayer or a business owner, taking a few minutes to review your situation now could provide peace of mind and potentially protect your opportunity for a future refund.

Disclaimer: The Kwong v. United States case remains under appeal. Refunds are not guaranteed, and eligibility varies by taxpayer. Determining whether filing a claim is appropriate requires a review of your individual tax situation. This article is intended for educational purposes only and should not be considered legal or tax advice.