According to the National Taxpayer Advocate (NTA), the federally declared period of the COVID-19 disaster ran from January 20, 2020, through May 11, 2023. A recent decision from the U.S. Court of Claims examined a claim by real estate businessman Terry Kwong, who argued that the Internal Revenue Service (IRS) did not accurately apply a tax regulation that dictates automatic postponements during declared periods of disaster.
The court agreed with Kwong that deadlines for filing taxes and making payments should have automatically been deferred until the end of the federally declared disaster period, with an additional 60 days to make payments or file required tax returns. The NTA suggests that “tens of millions of taxpayers may be entitled to refunds or abatements” because of this ruling.
That said, the case is likely to be appealed and a definitive outcome is still uncertain. While refunds may not arrive anytime soon, it is important to stake your claim in the event the ruling holds up on appeal. The IRS has not broadly publicized this potential opportunity, and eligible taxpayers will not automatically receive relief. Now is the time to take action if you believe you may be entitled to relief under the Kwong finding.
You may be eligible for an abatement or refund in circumstances that include:
An overpayment of interest during the federal disaster period.
If you were assessed penalties for failure to file returns, were behind on taxes or failed to make expected payments.
If you paid interest that was not required or if interest began accruing prematurely under the tax code.
If you have offshore bank accounts and were assessed penalties related to the late filing of an international information return, you may be eligible to make a claim. To gain a better understanding of reporting on and maintaining offshore accounts, consider reviewing our guide, "Offshore Tax Matters Explained."
While taxpayers with offshore bank accounts may be affected, the ruling could impact a broad range of individuals and businesses that incurred penalties or interest during the pandemic-era disaster period.
Penalties and assessments frequently lead to interest that can turn a small tax liability into significant debt. If you accrued tax debt during the pandemic era, it is important to learn if this new ruling impacts your case.
Generally, unless you file your claim for relief on or before July 10, 2026, you will be unable to recover those amounts later. The NTA has encouraged taxpayers to consider filing a protective claim before that date to preserve their rights while the issue continues to be litigated. The NTA refers to this as a “protective claim,” which will safeguard your right to make a claim to the IRS while the law around the issue is still being decided.
A protective claim does not guarantee a refund. Rather, it preserves your right to seek a refund should the courts ultimately uphold the reasoning in the Kwong decision.
To file a claim, you must complete and submit Form 843, “Claim for Refund and Request for Abatement.” Currently this form can only be submitted on paper. Despite the push last year for the IRS to move away from paper filings, it remains the only way a taxpayer can preserve their right to this claim. An NTA blog discusses additional considerations to keep in mind when filing.
For high-asset individuals or those with a complicated tax portfolio, consider consulting your tax professional or an experienced business tax lawyer if you have questions about the provisions of this court ruling. A business tax lawyer can help evaluate whether filing a protective claim is appropriate based on your specific circumstances.
Our tax attorneys at Robert J. Fedor can protect your interests on a Kwong-related claim and offer strong tax defense against allegations of tax fraud or payroll tax matters. If you have questions, get the right answers for your unique situation. Contact our tax group today.