A federal court found that the IRS wrongly assessed thousands of dollars in penalties against a single individual taxpayer — a ruling that may now extend to millions of Americans hit with similar penalties or interest during the pandemic. The IRS has refunded $1.2 billion so far through automatic relief procedures, and many more may be eligible, but obtaining a refund at this stage is anything but automatic.
If your clients experience any late filing or payment penalties or interest that accrued between January 20, 2020, and July 10, 2023, they may be owed a refund. And the window to preserve their right to claim the refund has a hard close: July 10, 2026.
That’s exactly what PenaltyBack by TaxNow was built for.
This didn’t start with one case. It started with two.
In April 2024, the United States Tax Court held in Abdo v. Commissioner that IRC §7508A(d) provides a mandatory, self-executing suspension of federal tax deadlines during federally declared disasters. The word “mandatory” matters here — the IRS doesn’t get to decide whether the suspension applies. The statute requires it.
Seven months later, in November 2025, the U.S. Court of Federal Claims confirmed and extended that holding in Kwong v. United States, ruling that the suspension covers the full COVID-19 disaster period (January 20, 2020, through July 10, 2023).
Together, these decisions establish that during the disaster period, the IRS was required to disregard that time when computing penalty and interest amounts. Failure-to-file penalties, failure-to-pay penalties, and underpayment interest were all computed over months the statute says “shall be disregarded.” The portions of those charges attributable to disaster-period months were legally improper.
That’s over three years of deadlines — covering individual returns, corporate returns, partnership returns, informational returns, and employment tax filings — where the IRS may have overcharged.
The IRS has acknowledged some of this exposure. Through Notice 2022-36, it automatically abated failure-to-file penalties for 2019 and 2020 returns filed before September 30, 2022, returning approximately $1.2 billion. A second program, Notice 2024-07, provided automatic failure-to-pay relief for 2020 and 2021 accounts under $100,000.
Both programs were narrower than what Kwong and Abdo require. Millions of taxpayers who were charged penalties on returns and payments due during the full disaster period — and never received that earlier relief — haven’t seen a dollar of it.
The IRS drew a line. The courts drew it differently. The gap between those two lines is where your clients’ money is.
There’s no automatic refund here. The IRS isn’t proactively issuing checks. Taxpayers who want their money back need to file IRS Form 843 — a formal refund claim — and they need to do it before the statute of limitations closes.
Here’s the good news on timing: Congress acted. The Disaster Related Extension of Deadlines Act (Pub. L. 119-64) ensures that disaster-related postponement periods are counted in the refund statute of limitations.
It doesn’t retroactively change the rules — but it does allow taxpayers filing claims today to fully account for the COVID relief period.
The practical result: for many 2019–2022 filings, July 10, 2026 has emerged as a key protective deadline.
That’s roughly three and a half months from now.
Waiting to see how the legal landscape develops could mean missing the deadline entirely — and once it passes, the right to a refund expires regardless of how the courts rule. This is the gap PenaltyBack by TaxNow was designed to close.
PenaltyBack by TaxNow gives practitioners a fast, accurate way to identify which clients had penalties and interest computed over disaster-period deadlines — and whether those charges qualify for a refund claim.
Instead of manually pulling account transcripts and cross-referencing penalty history for every client, PenaltyBack does the work. The engine identifies qualifying penalties, computes the disaster-period portion that’s abatable, calculates the erroneously charged interest, and shows you exactly what a refund claim looks like — before the deadline passes.
For practitioners working a full book of clients, that’s the difference between capturing this opportunity and missing it entirely.
The Kwong and Abdo rulings aren’t limited to one type of filer. Any individual or business whose federal tax deadlines fell within the disaster period may have a claim. That includes:
This covers Forms 1040, 1120, 1120S, 1065, 940, 941, 943, 944, and more. If your clients were charged penalties on returns or payments whose deadlines fell during the COVID years and they didn’t receive the earlier IRS administrative relief, they’re worth a second look.
The government may appeal the Kwong decision. Practitioners should be transparent with clients that this is an evolving area of law — a refund isn’t guaranteed.
But here’s the practical reality: Abdo is binding precedent in the Tax Court and has not been overturned. Kwong extended the same reasoning to the full COVID disaster period. Even if one decision were reversed on appeal, the other may provide independent legal support.
More importantly, the statute of limitations doesn’t wait for legal certainty. Filing a protective Form 843 now preserves the client’s right to recover. Not filing means the July 10, 2026 window closes regardless of how the courts rule — and that’s a conversation no practitioner wants to have after the fact.
The IRS has already refunded $1.2 billion in COVID-era penalties through limited administrative programs. Millions of Americans who qualify under the broader court rulings haven’t received anything — because no one filed for them.
PenaltyBack by TaxNow makes it easy to check, fast to act, and straightforward to file before the July 10, 2026 deadline. If the IRS owes your clients money from the pandemic period, now is the time to find out.
Visit penaltyback.com for your free check to see if your clients qualify.
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