IRS COVID Penalty Refunds: What New York Taxpayers Must Do Before July 10, 2026

Taxpayers who paid IRS penalties between 2020 and 2023 and assumed those charges were final may need to take another look. A November 2025 federal court decision has opened a window to recover some of those payments, but that window closes on July 10, 2026, and the IRS is not notifying anyone.

What the Kwong v. United States Ruling Said

The U.S. Court of Federal Claims ruled in Kwong v. United States that the IRS was not permitted to assess failure-to-file or failure-to-pay penalties during the COVID-19 federal disaster period, which ran from January 20, 2020, through July 10, 2023. The legal basis is Internal Revenue Code Section 7508A(d), which automatically extended federal tax deadlines for the full duration of the disaster. The IRS disagrees with this reading and is currently appealing the decision, which means refunds are not being issued and the case has not been fully resolved.

Which Taxpayers Are in Scope

Individuals, sole proprietors, small businesses, S-corporations, partnerships, estates, and trusts all fall within the ruling’s reach, provided they were assessed failure-to-file or failure-to-pay penalties on obligations due between January 20, 2020, and July 10, 2023. Queens business owners who filed late during the pandemic and paid the resulting penalties without disputing them are squarely in this category, as are independent contractors who received estimated tax penalty notices during 2020, 2021, or 2022 and simply paid them to move on.

What Filing a Claim Actually Involves

To request a refund, taxpayers must file Form 843, which is called Claim for Refund and Request for Abatement. Since the IRS is appealing the Kwong ruling and has not agreed to issue refunds yet, taxpayers will not receive refunds right away. The main reason to file before July 10, 2026, is to keep the option of a refund open if the court eventually decides in the taxpayers’ favor. This kind of early filing is called a protective claim, and the IRS will simply hold the claim until the case is resolved.

Form 843 must be submitted on paper and sent by certified mail, with a separate form required for each tax year at issue. Taxpayers should confirm they are using the December 2024 revision of the form, as older versions are still circulating online and have a different layout. The phrase "Protective Refund Claim Pursuant to Kwong v. United States" should appear at the top of every filing. Transcript retrieval and claim preparation take real time, and taxpayers with potential Kwong exposure who have not started this process should not leave it for the last days of June.

The Appeal and What It Means Practically

The Department of Justice is expected to take Kwong to the Federal Circuit, and there is a genuine possibility that the appellate court reaches a different conclusion. Taxpayers who file protective claims should understand that going in. The preparation cost is professional time and the effort of pulling IRS account transcripts. The cost of not filing is that the statute of limitations closes permanently on July 10, 2026, and no claim can be reopened after that date, regardless of the outcome of the appeal.

How to Confirm Whether Penalties Were Assessed

IRS account transcripts, available through the online account portal at IRS.gov, are the starting point for any Kwong review. Transcripts covering the 2019 through 2022 tax years will show whether penalty and interest assessments were posted and the dates those charges accrued, which is the key detail for determining whether they fall within the January 20, 2020, through July 10, 2023 window.

Reading those transcripts is not always straightforward. The IRS uses numeric transaction codes rather than plain descriptions, and accounts that include payment plans, amended returns, or prior audit activity from those years can be difficult to parse without experience. ETCPA reviews IRS account transcripts regularly as part of penalty resolution work for Queens and New York City clients and can identify which assessed amounts fall within the Kwong window and which fall outside it.

What This Ruling Does Not Cover in New York

The Kwong case is a federal decision that only affects IRS penalties under the Internal Revenue Code. It does not apply to tax penalties from New York State or New York City, even if they were assessed during the same COVID period. New York has its own rules for disaster relief, and any possible refunds or relief from the state require a separate review of those local laws.

This difference between federal and state penalties is important for many Queens taxpayers who owe taxes to both the IRS and New York State. If you have penalties from both, filing a federal protective claim does not take care of your New York State penalties because they are separate issues. ETCPA can help with both federal and state tax problems, and offers consultations in English and Spanish at its Forest Hills and Manhattan offices.

Who Should Review Their Tax History Before July 10

• Queens and New York City small business owners who filed federal returns late during 2020, 2021, or 2022 and paid failure-to-file penalties without disputing them
• Self-employed individuals and independent contractors assessed failure-to-pay or estimated tax penalties during the COVID period who settled those notices without filing an abatement request
• S-corporation and partnership owners assessed late-filing penalties on information returns with due dates between January 20, 2020, and July 10, 2023
• Estates and trusts carrying federal penalty assessments from the disaster period
• Taxpayers who entered IRS installment agreements during 2020 to 2022, where penalties and interest were folded into the balance

Frequently Asked Questions

Is the Kwong refund issued automatically?

No. The IRS is appealing the ruling and has not begun issuing refunds. Taxpayers who want to preserve a refund right must file Form 843 before July 10, 2026, and the IRS will hold that claim pending resolution in the courts. No filing means no refund, regardless of how the appeal eventually resolves.

What if those penalties were paid several years ago?

Taxpayers who paid COVID-era penalties and moved on can still file a protective claim. The statute of limitations for refund claims under the Kwong ruling runs from the end of the disaster period on July 10, 2023, which gives most taxpayers until July 10, 2026, to act. The date the penalties were originally paid does not determine eligibility on its own.

Does this ruling apply to New York State penalties?

No. Kwong applies only to IRS-assessed federal penalties under the Internal Revenue Code. New York State assessments from the same period fall under a different legal framework, and taxpayers with penalty histories on both the federal and state sides need those reviewed as separate matters.

What if IRS account transcripts are confusing or hard to read?

IRS transcripts use numeric transaction codes that are not self-explanatory, and accounts with prior payment arrangements or amended returns from those years can be genuinely difficult to follow. A CPA with regular IRS resolution experience can read those transcripts accurately and identify which line items fall within the Kwong window without the guesswork.

Final Takeaway

July 10, 2026 is a firm deadline, and the IRS is not sending reminders. Taxpayers who paid failure-to-file or failure-to-pay penalties during the COVID federal disaster period and want any chance at recovering those amounts under the Kwong ruling need to file a protective Form 843 claim before that date. Once the statute closes, the opportunity is gone permanently.

Taxpayers who paid IRS penalties during the COVID years and want to know whether those assessments fall within the Kwong window should have their transcripts reviewed before the July 10 deadline. ETCPA prepares protective Form 843 claims for individuals, business owners, estates, and trusts across Queens and New York City. Spanish-language consultations are available. Call 718-261-9600, email file@etcpa.com, or visit the Forest Hills office.