Millions may be eligible for refunds, but only if they act by 10 July 2026

Tax law occasionally provide relief in the least glamorous way possible – in this case through a procedural wrinkle that sat unnoticed until a court bothered to read the statute properly. That may now be happening with covid-era IRS penalties and interest, where a pair of taxpayer victories has opened the door to refund and abatement claims that many taxpayers may have never thought to make.

During the pandemic, the federal government declared a national disaster, and Section 7508A(d) of the Code requires certain tax deadlines to be disregarded from the start of the disaster period until 60 days after it ends. For covid, that period runs from 20 January 2020 to 10 July 2023. If those rulings hold, many filings the IRS deemed late were not, per the statute, late at all.

The National Taxpayer Advocate has warned that tens of millions of taxpayers may be eligible for significant refunds or abatements and has urged them to act by 10 July 2026. The reason for the urgency is that the IRS is not handing this relief out automatically; in many cases taxpayers will need to file refund claims, often on a protective basis, to stop the clock.

The legal drama began with Abdo v. Commissioner,¹ where the Tax Court held that Section 7508A(d) is mandatory and self-executing rather than a discretionary favour dispensed only when the Treasury says so. It gathered pace in Kwong v. United States,² where the Court of Federal Claims applied the same logic to conclude that the covid disaster period had to be disregarded in computing the deadline for a refund suit, thereby rendering a claim timely that the IRS thought was out of time. In plain English, the courts have started to say that the statute means what it says, and the consequences may be far broader than the government would like.

For advisers, the practical implication is straightforward enough. If a filing deadline, payment deadline or estimated tax obligation fell during that covid window, and the taxpayer was charged failure-to-file penalties, failure-to-pay penalties, estimated-tax penalties or related interest, there may now be a basis to claim a refund of such penalties and interest. Existing IRS relief programmes do not eliminate the opportunity. Notice 2022-36 and later administrative concessions did wipe away some penalties for some years and some taxpayers, but they were patchy, highly specific and nowhere near as broad as the theory now being advanced under Section 7508A(d).

That matters because many advisors will assume the ship has sailed for older years, especially where the taxpayer was not yet a client when the original penalty was assessed. The opportunity is real, but so is the uncertainty. The government does not agree with this expansive reading of the law, Kwong is being fought over and many claims may be denied administratively before any broader settlement emerges. This is, in other words, protective-claim territory - worthwhile where the dollars justify the effort, but not a guaranteed cheque in the post.

A disaster-relief provision designed for hurricanes and wildfires may provide relief for taxpayers who were told they had filed or paid too late and paid the price via penalties and interest. Taxpayers should review US filings around 2019 to 2022 for any meaningful penalties or interest during the pandemic period and consider filing a protective refund claim to stop the clock before the 10 July 2026 deadline. 

 ¹ 162 T.C. 148 (2024)
 ² 179 Fed. Cl. 382 (2025)