Back in May, we wrote about the growing controversy surrounding COVID-era IRS penalties and interest. At the time, many taxpayers viewed it as an interesting legal development.
Now, it’s becoming something much more important: A deadline problem.
Because if you think you—or your business—may have been overcharged IRS penalties or interest during the pandemic years, the window to protect your potential claim on money due back to you could close on July 10, 2026.
And waiting until the last minute may not be an option.
Why This Suddenly Matters
The issue stems from the federal court case Kwong v. United States, which challenged how the IRS applied penalties and interest during the COVID disaster period.
The court concluded that under existing disaster-relief law, certain federal tax deadlines were automatically postponed during the pandemic emergency period. If those deadlines were postponed, it is argued that related penalties and interest should have been adjusted accordingly.
The IRS is expected to continue challenging or appealing aspects of the ruling, so this is far from “settled law.”
But here’s the critical part: Even if the courts eventually side with taxpayers, many people could lose the opportunity to refund from their overpayment entirely if they fail to file a protective claim before the statute closes.
That’s why taxpayers are urged to review this now—not next year.
This Is Bigger Than Just Tax Returns
One reason many individuals and business owners are overlooking this issue is because they assume it applies only to late-filed Form 1040 tax returns. It may be much broader than that.
Potentially affected filings could include:
- Individual income tax returns
- Business tax returns
- Payroll tax filings such as Forms 940 and 941
- Partnership and S corporation filings
- Nonprofit information returns
- Estimated tax penalties
- Failure-to-pay penalties
- Interest charged on balances due
In other words, if the IRS assessed penalties or interest during the COVID years, it may deserve another look.
Why You Shouldn’t Wait Until July
This is not a one-page “easy button” filing.
Before a protective claim can even be prepared, taxpayers and advisors often need to:
- Obtain IRS account transcripts
- Review prior notices
- Identify which penalties and interest were assessed
- Match those charges to affected filing periods
- Prepare supporting documentation
- Complete Form 843 refund and abatement requests
That takes time. And as more taxpayers become aware of this issue, tax professionals across the country are already seeing increased demand for transcript reviews and claim preparation.
Waiting until late June could mean running out of time to properly evaluate the opportunity.
“What If I Don’t Qualify?”
That’s actually the wrong question. The better question is: “What happens if I do qualify and fail to protect the claim before the deadline?”
Because once the filing window closes, the opportunity may disappear regardless of how future litigation unfolds.
This is why many practitioners are referring to these filings as “protective claims.” The goal is not necessarily to demand an immediate refund today. The goal is to preserve the taxpayer’s rights while the legal process continues to develop.
Final Thought
Most taxpayers will never receive a letter from the IRS saying: “You may have overpaid us during COVID.” That responsibility falls on the taxpayer.
And with the July 10, 2026, deadline approaching, this is quickly shifting from an interesting tax story to a very real planning issue for individuals and businesses alike.
If you paid IRS penalties or interest during the pandemic years, now is the time to review your records—not after the deadline has passed. Visit www.saunderstax.com/penalties.php for more information.
If you need help with resolving a pandemic related tax problem, contact Saunders Tax & Accounting at http://www.saunderstax.com or call us at 301-714-2071. Open Monday – Thursday, 9 am to 5 pm. Awarded the Hagerstown Hot List 2026 and Hagerstown Chamber of Commerce “2023 Small Business of the Year” by providing a Less Taxing Life and More Prosperous Solutions since 1984!
