New Court Ruling Opens Door for COVID-Era Penalty Refunds: Action Required by July 10
The National Taxpayer Advocate estimates that tens of millions of taxpayers, including U.S. citizens living abroad, may be entitled to file a protective refund claim for late-filing penalties, late-payment penalties, and underpayment interest the IRS assessed during the COVID-19 federal disaster period. In Kwong v. United States (Nov. 25, 2025), the U.S. Court of Federal Claims held that IRC Section 7508A(d) automatically postponed every federal tax filing and payment deadline from January 20, 2020, through July 10, 2023. The IRS is appealing the decision, and the issue is unlikely to be finally resolved for years. The IRS is not currently issuing refunds. To preserve your right to one if the IRS ultimately loses, Form 843 must be filed with the IRS by July 10, 2026.
What Happened?
The Kwong Decision
The U.S. Court of Federal Claims ruled in Kwong v. United States that IRC Section 7508A(d), the federal disaster postponement statute, mandatorily extended every tax deadline that fell during the COVID-19 federal disaster declaration. The court held that the IRS lacked authority to assess failure-to-file penalties, failure-to-pay penalties, or underpayment interest for obligations due in that period.
The U.S. Tax Court reached the same statutory conclusion in Abdo v. Commissioner, 162 T.C. No. 7 (2024), holding that §7508A(d) is mandatory and self-executing. Abdo addressed Tax Court petition filing deadlines; Kwong extends the reasoning to penalties and interest.
How the COVID Disaster Postponement Works
The federal disaster declaration ran from January 20, 2020, through May 11, 2023. Section 7508A(d) extends the postponement an additional 60 days, pushing the effective deadline to July 10, 2023. The three-year statute of limitations on a refund claim, measured from the extended deadline, closes on July 10, 2026.
What the Taxpayer Advocate Is Saying
In April 2026, National Taxpayer Advocate Erin Collins issued a public alert urging affected taxpayers to file refund or abatement claims using Form 843, Claim for Refund and Request for Abatement, by July 10, 2026.
Where the Case Stands Now
The IRS is appealing the decision and has not begun issuing refunds. A protective refund claim filed now is what locks in your right to a refund if the IRS ultimately loses the case. Without a timely filing, the statute of limitations closes, and the refund window is gone, regardless of how the appeal turns out. Form 843 cannot be filed electronically. It must be submitted on paper.
Who Should File a Protective Claim?
The ruling affects a wide range of U.S. taxpayers, many of whom live abroad. You should consider filing a protective claim if you fall into one of these situations:
- Anyone who paid a failure-to-file or failure-to-pay penalty on a Form 1040 for tax years 2019 through 2022 that was filed or paid late during the COVID disaster window
- Anyone assessed a failure-to-file penalty on a zero-tax-due return filed during the disaster window. Under the Kwong logic, the return was not technically late until July 10, 2023, so the penalty may be refundable
- Americans abroad who received late-filing penalties because of embassy closures, postal delays, or accountant unavailability between 2020 and 2023
- Self-employed expats who paid underpayment interest on quarterly estimated tax shortfalls during the disaster period
- Streamlined filers who paid late-filing or late-payment penalties on income tax owed alongside their compliance submission, separate from any miscellaneous offshore penalty
- Owners of U.S.-based small businesses operated from overseas assessed pandemic-era failure-to-file or failure-to-pay penalties
- Retirees abroad who paid late-payment interest on tax owed for 2019 through 2022 returns
Penalties on Form 5471, Form 3520, Form 8938, and FBAR rest on different statutory authorities and are not the focus of the Kwong ruling. Those require an independent analysis.
What It Means for Expats
1. No money is moving right now
The IRS is appealing the Kwong decision and has not begun issuing refunds. The case is likely to take years to fully resolve through the appellate courts, and the final outcome is not certain. What you can do today is preserve a place in line, in case the IRS ultimately loses.
2. File the claim as a protective claim by July 10, 2026
Write “Protective Refund Claim Pursuant to Kwong v. United States” across the top of Form 843. That language signals to the IRS that you are filing to preserve your rights pending the appeal, and it stops the three-year statute of limitations from closing your window before the case is finally decided. Miss the July 10 deadline, and your claim is gone, regardless of how the appeal turns out.
3. Your current filing obligations have not changed
Tax year 2025 returns, FBAR, and information return obligations remain in full effect. The Kwong ruling addresses penalties and interest already assessed during the historical disaster window. It is not a holiday for present-year compliance.
4. International information return penalties are a separate question
If you paid penalties on Form 5471, Form 3520, Form 8938, or your FBAR, those rest on different statutory authority and are not directly covered by the Kwong reasoning. A targeted review by an international tax professional is the right step before filing those claims.
What You Should Do Next
The mechanics of the filing are simple. The path you take depends on which penalties you paid and where you stand with the IRS.
1. Start With Your IRS Account Transcripts
Request transcripts for tax years 2019 through 2022 before doing anything else. They list every penalty and interest assessment by date and amount, and they are the cleanest way to identify what may be refundable. Use the IRS account transcript walkthrough if you are pulling them from overseas.
2. File Form 843 Correctly
If you paid a failure-to-file or failure-to-pay penalty on a 2019, 2020, 2021, or 2022 Form 1040, four details matter.
- Use the right protective claim language. Write “Protective Refund Claim Pursuant to Kwong v. United States” across the top of the form. That language is what makes it a protective claim and preserves your rights pending the appeal.
- Send it Certified Mail with Return Receipt Requested. This gives you documented proof of timely filing. From overseas, use a trackable international service. The deadline is July 10, 2026.
- File a separate Form 843 for each tax year. Even if the same penalty was assessed across multiple years, a 2020 claim and a 2021 claim are two filings, not one. Mail them together if you like, but they should be separate forms.
- Consider a placeholder dollar amount. Because the exact refundable amount may change depending on how the appeal resolves, many practitioners enter a specific amount or write “In excess of $10.00” in the amount field to signal a protective claim for the full penalty assessed.
3. Address Special Situations Before You File
- If you still owe back taxes from those years, bring those returns up to date first. The Streamlined Filing Procedures and back tax catch-up paths are designed for U.S. taxpayers abroad who fell behind during this period.
- If you also paid penalties under Form 5471, Form 3520, Form 8938, or FBAR, treat them separately. They rest on different statutory authorities and need independent legal analysis before any refund claim is filed.
- If the IRS has already opened an examination of those years, stop and have a qualified international tax professional review your file before submitting Form 843. The interaction between an open exam and a protective refund claim requires careful sequencing.
A specialist who handles these claims for U.S. taxpayers abroad can pull the right transcripts, confirm which penalties apply, and prepare Form 843 with the correct protective language well before the July 10 deadline.
Think You Qualify? File a Protective Refund Claim Before July 10.
Other Refund Possibilities the Kwong Logic Opens
The Kwong reasoning extends beyond the most common penalty refunds. Three additional opportunities are worth flagging before the July 10 deadline.
1. Failure-to-File Penalties on Zero-Tax-Due Returns
If the IRS assessed a failure-to-file penalty on a return that showed no tax owed, the penalty may be refundable under the Kwong logic. The argument: the return was not technically late until July 10, 2023, because §7508A(d) postponed the original due date.
2. Refund Windows You Thought Had Closed
The same statute that postponed filing deadlines may have suspended the three-year window for claiming refunds. If your refund window for a 2019 or 2020 return appeared to expire during the disaster declaration, the postponement may have kept it open. Refund claims taxpayers believed were lost may still be alive. This is a more complex argument, but the possibility is real.
3. Additional Overpayment Interest From the IRS
When the IRS holds onto a refund longer than it should, it owes the taxpayer interest on the delay. Some practitioners argue that under the Kwong reasoning, the IRS may owe additional overpayment interest for delay periods affected by the postponement. The answer depends on how the appeal plays out and how the IRS interprets the postponement on the back end. Worth flagging if you had a sizable refund that was significantly delayed during the disaster window.
If any of these apply to you, treat them as part of the same protective filing window. The July 10, 2026, deadline applies to these arguments, too.
Frequently Asked Questions
Form 843, Claim for Refund and Request for Abatement, is the IRS form used to request a refund or abatement of certain penalties, interest, and additions to tax. In the context of the Kwong ruling, it is the form used to claim refunds of failure-to-file and failure-to-pay penalties, and of underpayment interest assessed during the COVID-19 disaster period.
Any taxpayer who paid a failure-to-file penalty, failure-to-pay penalty, or underpayment interest on a federal tax obligation due between January 20, 2020, and July 10, 2023, could qualify if the Kwong decision survives the IRS’s appeal. The court’s reasoning rests on IRC Section 7508A(d), which postponed all federal tax deadlines during the COVID-19 federal disaster declaration. Tens of millions of taxpayers, including U.S. citizens living abroad, fall within this window. None of them have received refunds yet.
No. The IRS is appealing the Kwong decision and has not yet begun issuing refunds based on it. The case is expected to take years to fully resolve, and the IRS may ultimately prevail. Filing Form 843 now does not produce a refund check today. It preserves your right to one if the IRS loses.
A protective refund claim is a refund claim filed before the law is finally settled, in order to preserve your right to a refund if the courts ultimately rule in the taxpayers’ favor. Because the IRS is appealing the Kwong decision, the National Taxpayer Advocate recommends filing Form 843 with “Protective Refund Claim Pursuant to Kwong v. United States” written across the top. That language locks in your filing date and stops the three-year statute of limitations from closing your window before the case is finally decided.
No. Form 843 must be filed on paper. The National Taxpayer Advocate recommends sending it certified mail, return receipt requested, so you have proof of the filing date if the claim is misplaced.
Request your IRS account transcripts for tax years 2019 through 2022. The transcripts list every penalty and interest assessment by date and amount, which is the cleanest way to identify what is potentially refundable.
Not directly. The Kwong reasoning applies to penalties and interest covered by IRC Section 7508A(d), which generally reaches Title 26 income tax obligations. International information return penalties on Form 5471, Form 3520, and Form 8938, and FBAR penalties under Title 31, rest on different statutory authority and require an independent legal analysis.
You generally lose your right to claim a refund of penalties or interest assessed during the COVID-19 disaster period. The three-year window measured from the extended July 10, 2023, deadline closes on July 10, 2026, and once it closes, the statute of limitations on the refund claim is gone, even if the IRS later loses the Kwong appeal and the underlying legal position is finally accepted.
No. The National Taxpayer Advocate has explicitly stated that this relief is not automatic. The IRS will not adjust your account on its own, and the IRS is currently appealing the Kwong decision. You must file Form 843 by July 10, 2026, to preserve a claim that may pay out only if the IRS ultimately loses on appeal.
Yes, Form 843 can be mailed to the IRS from any country. The mailing address depends on the type of tax and penalty involved, and the Form 843 instructions list the correct address. From overseas, allow extra time for international postal delivery and use a trackable, certified, or international-tracked service so you have a verifiable filing date.
No. File a separate Form 843 for each tax year. Even if the same penalty type was assessed across multiple years, each year is its own claim. Mail them together if you like, but they should be separate forms.
Possibly. When the IRS holds onto a taxpayer’s refund longer than the law allows, the IRS is required to pay overpayment interest on the delay. Some practitioners argue that under the Kwong reasoning, the IRS may owe additional overpayment interest for delay periods affected by the COVID-19 postponement. This is a more complex technical argument, and the answer will depend on how the appeal plays out and how the IRS interprets the postponement on the back end. If you had a sizable refund that was significantly delayed during the disaster window, raise it with a qualified tax professional before filing.
The information in this article is for general informational purposes only and does not constitute tax, legal, or financial advice. Tax rules are complex and change frequently. Consult a qualified tax professional regarding your specific situation before taking any action.
