Reviewed by Sandra Wolfe, Enrolled Agent · Last reviewed: June 2026

A recent federal court decision has created a potential refund opportunity for taxpayers who paid IRS penalties and interest during the COVID-19 pandemic. While the issue is still being litigated and the IRS does not currently agree with the court’s interpretation, many tax professionals are encouraging taxpayers to evaluate their eligibility and consider filing protective refund claims before an important deadline arrives.

For many taxpayers, that deadline may be July 10, 2026.

What Is the Kwong Decision?

In late 2025, the U.S. Court of Federal Claims issued its decision in Kwong v. United States. The case focused on how certain disaster relief provisions under Internal Revenue Code Section 7508A should apply to the COVID-19 federal disaster declaration.

The court concluded that statutory deadline extensions related to the COVID-19 disaster period may have remained in effect through July 10, 2023. If that interpretation ultimately survives appeal, some IRS penalties and interest assessed during that period may have been improperly charged.

While the decision itself involved a procedural refund claim, tax professionals across the country are evaluating whether the court’s reasoning could affect a much broader group of taxpayers.

Why Does July 10, 2026 Matter?

Under the court’s interpretation, many refund statutes would effectively begin running from July 10, 2023, rather than the original due dates.

As a result, taxpayers seeking to preserve potential refund rights may need to file claims no later than July 10, 2026. Missing that deadline could result in the loss of any future refund opportunity, even if taxpayers ultimately prevail in court.

Because refund statutes can vary based on the type of penalty, the date of payment, and other factors, not every taxpayer will have the same deadline.

Who May Want to Review Their IRS Account?

Taxpayers may wish to review their records if they:

• Paid Failure-to-File penalties during the COVID period
• Paid Failure-to-Pay penalties during the COVID period
• Paid estimated tax penalties for tax years impacted by the pandemic
• Paid significant IRS interest charges on balances that would have otherwise been subject to disaster relief provisions
• Previously filed refund claims that were denied as untimely during the COVID disaster period

The potential impact is not limited to individual taxpayers. Businesses, trusts, estates, and other entities may also have claims worth evaluating.

Is the IRS Issuing Refunds?

No.

The IRS has not adopted the court’s position and continues to challenge aspects of the ruling. In fact, the agency has indicated that it intends to continue litigating these issues, meaning the ultimate outcome remains uncertain. A higher court could affirm, limit, or overturn the decision.

That uncertainty is why many practitioners are discussing “protective refund claims.” A protective claim generally allows a taxpayer to preserve their rights while the courts continue to resolve the underlying legal issues.

What Is a Protective Refund Claim?

A protective refund claim is not a guarantee of a refund.

Instead, it serves as a placeholder that protects a taxpayer’s ability to seek a refund if the courts ultimately rule in favor of taxpayers on the issue. In many cases, taxpayers are filing these claims now because waiting until the litigation is resolved could cause the statute of limitations to expire.

The Bottom Line

The Kwong decision has created one of the more significant procedural tax developments in recent years. While the law remains unsettled and no refunds are guaranteed, taxpayers who paid substantial penalties or interest during the COVID-19 period may want to review their accounts before July 10, 2026.

If you believe you may be affected, consulting with a qualified tax professional can help determine whether a protective refund claim is appropriate and ensure important filing deadlines are not missed.

If you would like assistance reviewing your IRS transcripts or determining whether the Kwong decision may impact your situation, contact us for a free consultation by calling (888) 548-0478. Our team can evaluate your account, explain your options, and help you decide whether action should be taken before the deadline expires.