Refund or Abatement Opportunity.
Two recent federal court decisions that arose in procedural postures, Abdo v. Commissioner, 162 T.C. No. 7 (Apr. 2, 2024) and Kwong v. U.S. (179 Fed. Cl. 382, Nov. 2025), may entitle taxpayers to refunds or abatements of paid or assessed penalties and/or interest during the nearly 3.5-year COVID-19 federal disaster period, which was from Jan. 20, 2020 through July 10, 2023 (“COVID Period”).
Taxpayers must take action to protect their rights to these refunds or abatements, by filing a claim for refund on or before July 10, 2026 until the courts resolve the COVID Period postponement issue.
These recent court decisions analyzed the disaster related filing and payment deadline postponements provision in the 2019 version of IRC § 7508A(d), as it existed when the COVID-19 federal disaster was declared. The Kwong opinion concluded that IRC § 7508A(d) provides for the automatic postponement of filing and payment deadlines during the period a federal disaster declaration is in effect, plus sixty (60) days.
For COVID-19 a federal disaster declaration was in effect from January 20, 2020 through May 11, 2023. The addition of sixty (60) days to that period extended it to July 10, 2023 for tax purposes. In Kwong the court reasoned that the filing and payment deadlines were postponed during the entire COVID Period. Therefore, tax returns and payments due anytime within the COVID Period were not late until after July 10, 2023. That is, under Kwong the IRS should not have assessed penalties and/or interest for late filing or payment during the COVID Period, and thus, it should not have charged interest on those amounts.
Since the Department of Justice has appealed the Kwong decision, it may take years for the courts to resolve the automatic COVID-19 postponement issue.
Refund or Abatement for Qualifying Taxpayers.
Taxpayers may be entitled to a refund for amounts paid for, or abatement of certain amounts assessed, during the COVID Period, which may include penalties assessed for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments; underpayment or overpayment of interest resulting from interest computations connected to postponed due dates; and estimated tax penalties when installment due dates fall within the COVID period.
Qualifying Taxpayers.
The following taxpayers may be entitled to refunds of penalties and/or interest paid and to abatements of penalties and/or interest not yet paid: individuals, small and large businesses, estates, and trusts. The taxpayers’ obligations may be related to income, employment, estate, gift, and excise taxes, and to even international information returns, which can lead to significant penalties even when no tax is due.
Taxpayers’ Actions.
Taxpayers, who wish to file with the IRS a refund claim for paid penalty and/or interest or request for abatement of assessed penalty and/or interest, should take the following actions:
- Obtain an IRS Tax Account Transcript.
Taxpayers should first get an IRS Tax Account Transcript (Tax Transcript), which they can access through their Individual Online account or online Business Account.
Taxpayers should determine whether the Tax Transcript shows the following activity within the relevant COVID Period of January 20, 2020 through July 10, 2023: penalty and/or interest charge (e.g., penalty for late filing, failure to pay penalty, estimated tax penalty). If such activity exists during the COVID Period, the taxpayers may want to file with the IRS a refund claim if the taxpayer already paid for the penalty and/or interest, or a request for abatement of penalties and/or interest that have been assessed but not yet paid.
- File a claim for refund or abatement by July 10, 2026.
Taxpayers must file their refund or abatement claim by July 10, 2026. The IRS will not provide an automatic relief.
In general, taxpayers, who have overpaid their taxes, including penalty and/or interest, can request the IRS to issue a credit or refund before the later of three years from the date they filed their tax return (including extensions), or two years from the date they paid their taxes.
Due to the Kwong opinion, for most affected taxpayers, the three-year deadline for a refund claim or protective claim during the COVID Period for their 2019 – 2022 tax year returns would be postponed until July 10, 2026, which is three years from July 10, 2023. However, in some situations if taxpayers paid their assessed penalties and/or interest later than July 10, 2023, then the two-year period would apply and the Kwong COVID Period will be disregarded, possibly giving taxpayers time after July 10, 2026 to file a credit or refund claim.
The following two examples show the application of the Kwong opinion to either the three years or two years deadline for claiming refunds of paid penalty and interest:
- On August 30, 2022, a taxpayer files her 2021 income tax return without previously filing an extension and pays the tax in full upon filing. On September 1, 2022, the IRS assesses failure to file and failure to pay penalties and interest on the amount of tax due but not paid by the filing due date of April 15, 2022 because it determines the return was late. On October 1, 2022, the taxpayer pays the penalties and interest. Under Kwong, the due date for the taxpayer’s 2021 income tax return was July 10, 2023, the IRS should not have assessed penalties and interest, and the taxpayer has until July 10, 2026 to file a refund claim.
- Assume that the taxpayer above in example (1), pays on July 1, 2025 the assessed penalties and interest. Under Kwong, the return was timely filed because it was not due until July 10, 2023, and thus, no penalties and interest were due. The taxpayer has until July 1, 2027,(i.e., two years from the date of payment) to file a refund claim, which is later than July 10, 2026.
Formal Refund or Protective Refund Claim.
Taxpayers’ decision to either file a formal refund or protective refund claim is based on whether taxpayers can determine the exact amount of their claim at the time of filing a refund claim.
Taxpayers should file a formal refund claim when they can reasonably calculate the amount they are seeking to recover. On the other hand, taxpayers should file a protective claim when they are unsure of the exact amount of the refund because it is contingent on a pending court case or decision such as the Kwong case and the exact refund amount may not be determinable until after the statute of limitations expires.
Filing Form 843.
Taxpayers, who are not revising their underlying tax liability, must complete Form 843 (Claim for Refund and Request for Abatement) to make a timely filing of a formal or protective refund claim, or of a claim for assessed penalties and/or interest.
Although taxpayers filing a protective claim do not need to provide on Form 843 a particular dollar amount or demand an immediate refund, their claim must identify and describe on this form the contingencies affecting their claim (e.g., “claim is based on the COVID-19 disaster relief period and the legal reasoning provided in Kwong v. U.S.), must be sufficiently clear and definite to alert the IRS as to the essential nature of their claim, and must identify the specific year for which a refund or abatement is sought.
Taxpayers can alert the IRS of the nature of their claim by writing “Protective Refund Claim Pursuant to Kwong Case” or similar language across the top of Form 843.
In most cases, taxpayers must file a separate Form 843 for each tax period and each type of tax. They should not combine multiple years or unrelated issues on one form unless the Form 843 instructions clearly allow it.
It is recommended that taxpayers consider providing the following supporting information when filing Form 843:
- A statement describing the penalty and/or interest amounts, if known; and the dates, including specific year of their assessment and/or payment;
- An explanation connecting the penalties and/or interest amounts to the COVID-19 disaster relief period;
- Copy of Tax Transcript identifying the relevant dates for the IRS assessment of penalty and/or interest, and the taxpayer’s payment of the assessed penalty and/or interest, if any;
- Copies of IRS notices or correspondence, if applicable.
Paper Filing of Form 843.
Taxpayers must file Form 843 with the IRS on paper since it cannot be filed electronically, and mail Form 843 to the IRS by certified mail with return receipt to have proof of its timely filing.
Taxpayers should mail Form 843 to the IRS service center where the taxpayer would file a current-year return for the tax involved.
If you have any questions regarding the filing of protective claims, please contact your MSPC advisor at info@mspc.cpa
The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by MSPC CPAs and Advisors, P.C. (“MSPC”) to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her MSPC or other tax professional prior to taking any action based upon this information. MSPC assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.
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