Millions may qualify for IRS refunds: All you need to know about the new ruling

Tens of millions of taxpayers could qualify for the refund or removal of IRS-imposed penalties and interest accrued during the 3.5-year COVID-19 disaster window, the National Taxpayer Advocate informed in a blog post last week. However, those eligible for such refunds or rebates must file their claims by July 2026.

As per the blog post, the development stems from Kwong v. United States case, revisiting the duration of the COVID-19 disaster declaration period (January 20, 2020, to May 11, 2023), including a statutory extension. The National Taxpayer Advocate noted that in the case, the U.S. Court of Federal Claims concluded that filing and payment deadlines were postponed for 60 days, till July 10, 2023, throughout the entire disaster period. 

"By the court's logic, the IRS should not have assessed penalties for late filing or payment during that 3.5-year period, nor charged interest on those amounts," the blog post noted. However, it cautioned that these refunds will not be automatic, and to avail it, eligible taxpayers would need to file their claims before July 10. 

Who qualifies for relief?

As per the National Taxpayers Advocate, taxpayers may be entitled to a refund on certain amounts assessed during the COVID-19 period. These include "penalties assessed for failure to timely file returns, failure to pay taxes, or failure to make estimated tax payments," interest that accumulated earlier than it should have, and overpayment of interest during the disaster relief period. 

The blog post estimates that penalties or interest for late filings or payments during this period affected "tens of millions of taxpayers." If the Federal Claims Courts' decision holds up, all of them would be entitled to refunds and abatements. 

What to do next?

If a taxpayer believes that the IRS had improperly assessed penalties during the COVID-19 emergency period, they should first request their tax account transcripts from the IRS and review the specific penalties and interest charges applied between 2020 and 2023. If eligible, taxpayers should then file a claim through Form 843 (Claim for Refund and Request for Abatement).

The National Taxpayers Advocate advises eligible citizens to also consider filing protective claims to preserve their rights, as the law in this regard is still being litigated. As per the IRS's Internal Revenue Manual (IRM) procedures, a valid protective claim "need not state a particular dollar amount or demand an immediate refund; however, the claim must identify and describe the contingencies affecting the claim; must be sufficiently clear and definite to alert the IRS as to the essential nature of the claim; and must identify a specific year or years for which a refund is sought."