IRS pandemic penalty refunds after the July 2026 deadline: What happens now?
A federal court ruling opened the possibility that some IRS penalties and interest assessed during the COVID-19 emergency were improper. However, refunds are not automatic, the government has appealed, and the widely publicized July 10, 2026 deadline for most protective claims has now passed.
Taxpayers who filed on time should preserve evidence and monitor the appeal. Those who did not file may have limited options depending on payment dates and normal refund limitation rules.
Why did the pandemic refund issue arise?
The controversy comes from Kwong v. United States, a 2025 Court of Federal Claims decision concerning statutory deadline relief during federally declared disasters.
The court concluded that the law automatically postponed covered deadlines during the COVID disaster period. Under that reasoning, relevant deadlines could have been postponed through July 10, 2023.
If a filing or payment was not legally late, some related failure-to-file penalties, failure-to-pay penalties and interest may have been assessed too early. That created the potential for refunds or abatements.
The decision is not the final word. The United States appealed to the US Court of Appeals for the Federal Circuit, so the ultimate legal outcome remains unsettled.
Why was July 10, 2026 so important?
Federal refund claims are governed by strict limitation periods. Based on the Kwong reasoning and the three-year claim period, the National Taxpayer Advocate warned that most affected taxpayers needed to act by July 10, 2026.
Before that date, taxpayers could submit Form 843, Claim for Refund and Request for Abatement, as a formal or protective claim. A protective claim preserves a taxpayer’s position while a legal issue remains unresolved. It does not guarantee payment.
The Taxpayer Advocate Service recommended identifying the filing as a protective claim connected to Kwong and generally using a separate form for each tax period and tax type.
Who may have filed a protective claim?
Potential claimants included individuals, businesses, estates and trusts assessed certain penalties or interest during the COVID disaster window.
The strongest candidates generally had clear IRS records showing:
- The tax period and original deadline
- The type and amount of each penalty or interest charge
- When the amount was assessed
- When and how much was paid
- Why the assessment falls within the legal theory adopted in Kwong
Eligibility was never as simple as paying any IRS penalty between 2020 and 2023. The deadline, assessment, payment and limitation period all required review.
What should taxpayers who filed by the deadline do now?
Protective claims may remain unresolved during the appeal, and the IRS may request more details.
Taxpayers should retain the complete claim, IRS account transcripts, proof of payment and proof of timely submission. Paper filers should preserve certified-mail receipts or courier tracking. Online filers should keep the confirmation and an exact copy of what was uploaded.
Record which penalty, interest amount and period each claim covers. Keep the Form 843, delivery confirmation, account transcripts, original return, notices and later correspondence. Silence should not be treated as approval or denial.
What if someone missed July 10, 2026?
For many taxpayers relying on Kwong, the three-year window has likely closed. A late protective claim does not revive an expired deadline.
July 10 was not necessarily the only date in every case. Refund rules can also allow a claim within two years after payment, so a recent payment may produce a different deadline.
Verify the payment date from an account transcript before concluding a claim is timely. Be wary of promotions suggesting the deadline can simply be ignored.
The distinction between a refund and an abatement also matters. A refund claim generally concerns an amount already paid, while an abatement request asks the IRS to remove an unpaid assessment. Different procedural rules can apply, and the two-year payment rule cannot help where no payment was made. Taxpayers should confirm whether their transcript shows an assessed balance, a completed payment or both before choosing how to proceed.
Why are US expats part of the story?
Americans abroad faced disrupted mail, closed offices and delayed access to records. Some also received penalties for international information returns, even when little US income tax was due.
Whether those international penalties fall within the Kwong reasoning remains legally complex. A protective claim may preserve an argument, but it does not establish that every foreign-reporting penalty qualifies.
Expats should also check the address the IRS used during the pandemic. A missing notice does not resolve the underlying assessment, but an outdated address can explain why a penalty was discovered late and may be relevant to other relief arguments.
Guidance on COVID-era IRS penalty refund claims should therefore be read as a framework for reviewing the issue, not a promise of a refund. Expat taxpayers need to match each assessment to the relevant return, deadline and statutory authority.
What happens next in the courts?
The Federal Circuit will review the lower court’s interpretation. Further proceedings could follow, so resolution may take time.
If the government succeeds, claims based solely on Kwong may be denied. If taxpayers ultimately prevail, timely protective claims could become the basis for refunds or abatements, subject to each claimant’s facts and the scope of the final ruling.
For now, anyone who filed should keep their records current and monitor IRS correspondence. Anyone who missed the general deadline should obtain transcripts, verify payment dates and seek advice before assuming either that relief remains available or that it has vanished completely.