Businesses that paid IRS penalties during the COVID-19 federal disaster period may have an opportunity to recover some of those amounts. A recent court decision, Kwong v. United States, 179 Fed. Cl. 382 (U.S. Court of Federal Claims, 2025), has raised questions about the validity of certain penalties and underpayment interest assessed between January 20, 2020, and July 10, 2023.
Although the ruling is currently under appeal, eligible taxpayers may be able to preserve their refund rights by filing a protective claim before the applicable deadline. For many businesses, that deadline is July 10, 2026.
This guide explains which IRS penalties may qualify for relief, who may be eligible, how to file Form 843, and what steps you can take to protect your ability to pursue a refund.
What IRS Penalties May Qualify for Relief?
Not every IRS penalty qualifies for relief, but several of the most common penalties may be eligible for abatement or a refund. If your business incurred any of the following penalties between January 20, 2020, and July 10, 2023, you may be able to recover those amounts:
• Failure-to-File Penalty (IRC §6651(a)(1)) – failure to file a return by the applicable deadline can result in penalties for late submission. The IRS generally charges 5% of the unpaid tax for each month the return remains unfiled, up to a maximum penalty of 25%.
• Failure-to-Pay Penalty (IRC §6651(a)(2)) – assessed when taxes are not paid by the required deadline, even if the return itself was filed on time. The IRS charges 0.5% of the unpaid tax for each month or part of a month the tax remains unpaid, up to a maximum of 25%. In any month where both the failure-to-file and failure-to-pay penalties apply, the failure-to-file penalty is reduced by 0.5% (from 5% to 4.5%).
• Estimated Tax Penalties (IRC §6655 for corporations and IRC §6654 for individuals) – applied when required quarterly estimated tax payments are missed or underpaid.
• International Information Return Penalties – these penalties can be significant and may apply even when no additional tax is due.
• Underpayment Interest and Interest Related to Eligible Penalties – the Kwong court held that IRC §7508A(d) suspended not only penalties but also the accrual of underpayment interest for the duration of the COVID-19 disaster period. Interest that accrued on qualifying penalties during that period may also be eligible for relief.
Businesses that entered into an IRS installment agreement during the pandemic should also review their records carefully. Penalties and interest that accumulated during that period may qualify for IRS penalty abatement, potentially resulting in a refund or reduction of outstanding balances.
Why Does the Kwong v. United States Case Matter for Your Business?
The opportunity to claim these refunds stems from a U.S. Court of Federal Claims decision, Kwong v. United States, 179 Fed. Cl. 382 (Nov. 25, 2025).
In its decision, the court held that IRC §7508A(d), the provision requiring automatic postponement of federal tax deadlines during a presidentially declared disaster, mandated a full suspension of filing and payment deadlines for the entire COVID-19 federal disaster period, from January 20, 2020, through July 10, 2023 (60 days after the federal public health emergency formally ended on May 11, 2023). Because the IRS continued to assess penalties and charge underpayment interest during a period when deadlines were legally suspended, those assessments may not have been valid.
As a result, some penalties imposed during that period could potentially qualify for relief.
If penalties such as Failure-to-File or Failure-to-Pay, or related interest charges, were assessed during the COVID disaster period, the Kwong ruling could provide grounds to seek relief or refunds.
It is important to note that the ruling is currently under appeal, and the IRS has not yet issued broad guidance confirming automatic refunds for affected taxpayers. However, businesses do not have to wait for the appeals process to conclude.
Submitting a protective claim before the July 10, 2026, deadline can help safeguard your ability to seek a refund if the ruling is ultimately upheld. Taking action before the filing period expires can help protect your rights as the case moves through the judicial process.
Does Your Business Qualify for IRS Penalty Relief?
IRS penalty relief eligibility is determined by multiple considerations, such as the penalty type, the timing of its assessment, and whether relief has already been granted for the same tax period.
Your business may qualify for a refund or penalty abatement if you:
• Were assessed or paid IRS penalties between January 20, 2020, and July 10, 2023.
• Filed one or more tax returns after the original due date during the COVID-19 federal disaster period.
• Paid Failure-to-Pay Penalties on taxes that became due during this timeframe.
• Filed international information returns late and incurred related penalties.
• Entered into an IRS installment agreement and accrued penalties or interest during the covered period.
Your business may not qualify if:
• You have already received penalty relief or an abatement for the same tax year and penalty type.
• The penalty does not fall within the eligible categories.
• The penalty was assessed outside the January 20, 2020, through July 10, 2023, eligibility window.
Because eligibility varies from one taxpayer to another, reviewing your IRS account transcripts and penalty notices is the most reliable way to determine whether you may be entitled to a refund. For businesses with multiple tax filings or complex compliance requirements, a professional review can help identify opportunities that might otherwise be overlooked.
How Much Could Your Business Recover?
The amount your business may recover depends on the type of penalties assessed, the amount of tax involved, and how long the penalties and related interest accrued. Some businesses may be eligible for refunds of a few hundred dollars, while others with larger balances or multiple penalty assessments could recover significantly more.
Although there is no standard refund amount, previous IRS penalty relief programs demonstrate how meaningful these opportunities can be. Under IRS Notice 2022-36, nearly 1.6 million taxpayers received more than $1.2 billion in penalty relief through refunds and credits.
The potential recovery available under the Kwong v. United States decision will vary based on each taxpayer’s circumstances. Businesses that incurred multiple penalties or accumulated interest during the COVID-19 federal disaster period may have larger claims.
The best way to estimate your potential refund is to review your IRS account transcripts and identify all penalties and related interest assessed between January 20, 2020, and July 10, 2023. A detailed review can help determine whether your business may be entitled to IRS penalty relief or a refund.
How to File for IRS Penalty Abatement: Step by Step
If your business may qualify for relief, following the correct process is essential. Here’s how to file an IRS penalty abatement claim.
Step 1: Obtain Your IRS Account Transcripts
Access your IRS online account or request transcripts by mail. Review them for any Failure-to-File Penalties, Failure-to-Pay Penalties, estimated tax penalties, or related interest assessed between January 20, 2020, and July 10, 2023.
These records will help you determine which penalties may qualify for a refund and provide the documentation needed to support your claim.
Step 2: Add Up All Payments Made
Calculate the total penalties and interest paid during the eligible period. Be sure to use exact amounts when preparing your claim.
If multiple payments were made, consider attaching a schedule showing the payment dates and amounts to make the claim easier for the IRS to review.
Step 3: Complete IRS Form 843
IRS Form 843, Claim for Refund and Request for Abatement, is used to request penalty relief or a refund.
When completing the form:
• Check the box for Penalty – Abatement or refund of a penalty due to reasonable cause or other reason allowed under the law. Note: a Kwong-based claim is a statutory argument under IRC §7508A(d), not a facts-and-circumstances reasonable cause argument. Explain in Line 7 of the form that the penalties were assessed during a legally mandated postponement period and cite the Kwong decision as the basis for the claim.
• Enter the applicable tax year or years and the exact penalty amounts.
• Reference the relevant Internal Revenue Code sections, such as IRC §6651(a)(1) for Failure-to-File Penalties and IRC §6651(a)(2) for Failure-to-Pay Penalties. For a Kwong-based claim, also cite IRC §7508A(d) as the statutory basis for the mandatory deadline postponement.
• If the outcome of Kwong v. United States has not been finalized, consider noting “Protective Refund Claim Pursuant to Kwong v. United States” at the top of the form to indicate that you are preserving your refund rights while the appeal remains pending.
Step 4: Mail Your Claim and Keep Proof of Delivery
Form 843 is generally submitted by mail rather than electronically. Sending your claim by certified mail with proof of delivery can help establish that it was filed on time and provide documentation if questions arise later.
Step 5: File Before the Deadline
For many businesses, July 10, 2026, is the key deadline for filing a protective refund claim.
However, if you paid the penalty or related interest after July 10, 2023, a later filing deadline may apply. In some cases, taxpayers have two years from the date of payment to submit a claim.
Because refund statutes can be complex and deadlines vary, filing as early as possible can help preserve your rights and avoid last-minute issues.
What Is a Protective Refund Claim, and Why Should You File One?
A protective refund claim is a formal request that preserves your right to seek a refund while a legal issue is still being resolved. In other words, it allows you to protect your claim now, even if the final amount or outcome has not yet been determined.
Because Kwong v. United States is currently under appeal, the ultimate legal outcome remains uncertain. Filing a protective claim enables taxpayers to preserve their refund rights without waiting for the courts to issue a final decision. If the ruling is ultimately upheld, your claim will already be on file.
In some cases, protective claims may also be used to request the abatement of penalties and related interest that have not yet been paid. This can be particularly important for businesses that are still carrying unpaid COVID-era IRS penalties.
The key advantage of filing a protective refund claim is timing. Waiting until the legal issues are fully resolved could result in missing important filing deadlines. For businesses that may qualify for relief, filing a protective claim before the applicable deadline can help preserve the opportunity to recover eligible penalties and interest.
Is This IRS Penalty Relief Guaranteed?
No. There is no guarantee that every claim will result in a refund or penalty abatement. The Kwong v. United States decision is currently under appeal, and the IRS has not yet issued broad guidance confirming how it will handle all claims related to the ruling.
However, taxpayers generally do not need to wait for the appeals process to conclude before taking action. Filing a protective refund claim before the applicable deadline can help preserve your rights while the legal issues are being resolved. Missing the filing deadline, on the other hand, could limit your ability to pursue a refund in the future.
Businesses should also be cautious of firms or promoters promising guaranteed refunds or requesting substantial upfront fees. No tax professional can guarantee a particular outcome, especially while the legal landscape remains uncertain.
If you believe your business may qualify, consider working with a qualified tax professional, such as a CPA, Enrolled Agent (EA), or licensed tax advisor, who can review your circumstances, assess your eligibility, and help ensure that any claim is prepared accurately.
How MASPartner Can Help
Navigating IRS penalty relief can be complex, particularly when multiple tax years, penalty types, and interest charges are involved. At MASPartner, we help small businesses and law firms in more than 50 countries manage their accounting, bookkeeping, and tax compliance obligations.
If your business incurred IRS penalties during the COVID-19 federal disaster period, our team can assist with:
• IRS account transcript review – Identify potentially eligible penalties and related interest charges through a detailed review of your IRS records.
• Eligibility assessment – Determine whether your business may qualify for a refund or penalty abatement based on your penalty history and prior relief received.
• Form 843 preparation and filing support – Prepare protective refund claims accurately and submit the required documentation before the applicable deadline.
• Ongoing tax compliance support – Strengthen accounting and tax processes to help reduce the likelihood of future penalties and interest charges.
Because refund deadlines are time-sensitive, reviewing your eligibility sooner rather than later can help preserve your rights. If you would like assistance evaluating your IRS penalty history, the team at MASPartner can help you understand your options and guide you through the claims process.
FAQs
1. How do I know if IRS penalties were assessed during the COVID disaster period?
You can confirm this by reviewing your IRS account transcripts, which show the exact dates penalties and interest were applied.
2. What is the COVID disaster period for IRS penalty relief?
It generally refers to January 20, 2020, through July 10, 2023, which is the timeframe referenced in the Kwong v. United States decision.
3. Can I file a claim if I am still under an IRS payment plan?
Yes. Businesses under installment agreements may still be eligible if penalties or interest accrued during the relevant period.
4. What documents are needed to file a protective refund claim?
Most claims require IRS account transcripts, penalty notices, payment records, and a completed Form 843.
5. What happens after I submit Form 843?
The IRS reviews your claim, verifies eligibility, and may approve, partially approve, or deny the request depending on your case.
6. Can businesses claim relief for multiple tax years?
Yes. If penalties were assessed across multiple years within the eligible period, each year may be reviewed separately.
7. Does filing a protective claim stop IRS collections?
No. A protective claim preserves rights but does not pause IRS collection activity on outstanding balances.
8. Is professional help required to file a claim?
It is not required, but many businesses use tax professionals to ensure transcripts are reviewed correctly and filings are accurate.
9. What if my penalty includes both tax and interest charges?
Both penalties and related interest may be reviewed for potential relief depending on eligibility under the ruling.
10. What is the risk of not filing before the deadline?
Missing the deadline may permanently limit your ability to claim a refund, even if the court ruling is ultimately favorable.
Conclusion
Businesses that incurred IRS penalties during the COVID-19 federal disaster period may have an opportunity to recover eligible penalties and related interest. While the outcome of Kwong v. United States remains uncertain, filing a protective refund claim can help preserve your rights before the applicable deadline.
Because IRS penalty relief is not automatic, reviewing your IRS account transcripts and submitting Form 843 on time are important steps. If you’re unsure about your eligibility or how to proceed, a qualified tax professional can help.
Book your free consultation today to review your IRS penalty history and explore your options for potential relief.
