The IRS Charged You Penalties During COVID. A Court Just Said That May Have Been Wrong.

What the Kwong ruling means for you and why the window to act is closing fast. 

 

Let’s Start With What Most People Missed 

Everyone remembers the stimulus checks. Fewer people remember that a specific federal disaster relief law may have required the IRS to stop charging penalties and interest for a much longer stretch than they actually did. 

A case called Kwong v. United States, decided in late 2025, put that law under a microscope. The court’s conclusion: the IRS applied the COVID postponement for 60 days when it should have run from January 20, 2020 through July 10, 2023. Over three years. 

That means penalties and interest assessed during that window may not have been legally valid. 

If you paid penalties or interest on taxes tied to 2019, 2020, 2021, or 2022, this is worth your attention. 

 This ruling is not final. The IRS disagrees with it, the DOJ has appealed, and Congress could still act, so a refund is not guaranteed. There’s a deadline and missing it costs you the right to claim one permanently, even if the courts eventually rule in your favor. 

 

What Are We Actually Talking About? 

When you owe the IRS and don’t pay or file on time, they add penalties and then charge interest on top of what you owe. Normal enough under normal circumstances. 

The Kwong argument is straightforward: during a federally declared disaster, the law required those charges to pause. The IRS paused for 60 days. The court said it should have been three-plus years. That’s the gap where your money may be sitting. 

 

Does This Apply to You? 

Here are the common situations I’m seeing come up: 

• You filed late or paid late on a 2019-2022 return. You had a balance, paid penalties as well as interest, and moved on. Those charges may have been incorrectly assessed. Potentially eligible. 
• You’re self-employed and missed quarterly estimated payments. Freelancers, consultants, and small business owners if you got hit with underpayment penalties for 2020, 2021, or 2022, every one of those due dates falls inside the postponement window. Potentially eligible. 
• Your business filed a late partnership or S-Corp return. These penalties stack. They’re charged per partner or per shareholder, so the total can get significant fast. If your entity filed late for any year between 2019 and 2022, this applies. Potentially eligible. 
• You had an older balance and interest just kept accumulating. If you were on a payment plan and interest piled up through 2020-2023, you may have a case, though it gets more fact-specific. Worth a conversation. 
• You paid everything on time and had no penalties. Nothing to claim here. Move along. 

 

The Deadline 

For most people: July 10, 2026, mailed by certified mail. 

This is called a protective claim. It’s not a demand for an immediate refund. It preserves your rights while the legal process is played out. If you made more recent payments, say, you settled a 2022 balance in late 2024 or 2025, your deadline might extend further, but the analysis must be done right. 

Miss the deadline and it doesn’t matter what the courts decide later. You’re out. 

 

What to Do Now 

Don’t assume this doesn’t apply to you before actually checking. A lot of people paid penalties and interest during this period without a second thought because that’s what the IRS told them they owed. 

Here’s what I’d recommend: 

• Have your tax professional pull your IRS account transcripts for 2019 through 2022 and review what was assessed and paid. 

• Understand this is a protective filing, not a check in the mail next month. 

• Don’t try to file Form 843 yourself. The requirements are specific, and an error can forfeit your rights entirely. 

 

One More Thing Worth Knowing 

The National Taxpayer Advocate, an independent office within the IRS, has stated publicly that tens of millions of taxpayers may be eligible for meaningful refunds under this ruling. That’s not a small advocacy group saying that. That’s the IRS’s own internal watchdog. 

It also explains why the IRS is fighting this ruling as hard as they are. 

Moments like this don’t come often. A court opens a window; the window has a hard close date, and most people won’t hear about it until it’s too late. Now you have. 

 

Melanie Willis, EA | Willis Bookkeeping Services dba ClearBizClutter 

This article is for general informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional about your specific situation.