Kwong v. The United States offers an opportunity for tax refunds before July 10

For many filers, the tax deadline has come and gone. But thanks to a federal court ruling, millions of Americans are still eligible for tax refunds for pandemic-era penalties and interest.

The issue stems from recent decisions, including Kwong v. United States, which found that the IRS should not have assessed certain penalties and interest as of Jan. 20, 2020, until July 10, 2023, That includes the period of the Covid-19 crisis until May 11, 2023, and another 60 days. The court’s decision was based on an interpretation of a provision of the tax code that governs the deadline for postponing filing and payment during a crisis.

If taxpayers filed returns and paid taxes on time, they generally have three years after the deadline to file unpaid refund claims, bringing the deadline to July 10, 2026.

The court’s decision is not final, and the government can still appeal.

But if the decision stands, it could provide “a significant opportunity for refunds” to some filers, National Tax Advocate Erin Collins wrote in an April 30 blog post. Collins heads the Consumer Advocate Service, an independent organization within the IRS.

The exemption won’t happen automatically, and affected taxpayers generally have to take action by July 10 to receive a possible refund or rebate, which is a waiver of the penalty, Collins wrote.

Taxpayers can collect IRS penalties and interest for missing tax filing and payment deadlines. The default penalty is 5% of your monthly unpaid taxes, up to 25%, while the default penalty is 0.5% of your monthly balance, with the same cap.

The decision of Kwong v. In the United States we may be subject to taxpayers who have received penalties for late filing or failure to pay taxes, including tax payments and estimated interest.

“This issue is widespread and not limited to a small or special group of taxpayers,” Collins wrote in a second blog post on May 5. “The affected taxpayers represent a broad cross-section of the community, including individuals, small businesses, large corporations, estates and trusts.”

In fiscal year 2023, the IRS assessed more than $14.2 million in estimated tax penalties and approximately $18.6 million in penalties for failure to pay, according to the agency’s latest data. However, some filers received a reduced sentence.

With the July 10 deadline nearly two months away, some tax professionals are rushing to inform clients about possible refunds or penalty reductions.

“These cases have opened the door to what could be one of the biggest waves of tax refund claims in recent years,” tax consultant Victoria Boon of Boon Tax Educators told CNBC.

“But the outcome remains uncertain, and taxpayers must act quickly to preserve their rights while the legal landscape continues to evolve,” said Boon, who has spent more than 20 years working for the IRS.

You can use the tax transcript in the IRS’s online account to see if the agency has charged you the appropriate penalties or interest since Jan. 20, 2020, until July 11, 2023, according to Collins. He included instructions and an example in his May 5 blog post.

Many taxpayers can use Form 843 to request a refund or abatement, but it cannot be filed electronically and must be mailed in, Collins wrote. It is recommended that the form be sent by certified mail in order to have proof that it was sent before the deadline.

Once you have paid the penalties and interest, you will request a refund from the IRS; unpaid balances will require a reduction request, he wrote in a third blog post on May 7.

A “protective claim” can help preserve rights to refunds when the law is not repealed, Collins wrote. But first, “taxpayers should consult with a trusted tax professional, review IRS guidance and keep documentation to support your position.”